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Buyback buoys Cummins’ stock

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Columbus-based engine maker Cummins Inc. wrapped up a solid Wall Street performance Friday, parlaying its midweek announcement of a $1 billion stock buyback program into a 4.5 percent gain in stock for the week.

Cummins’ stock closed at $106.30 per share Friday — up 82 cents on the day and $4.61 for the week — with some analysts suggesting the shares could realistically trade in the $120 to $130 range by the end of next year.

“Returning some value to shareholders in terms of buying $1 billion worth of stock back is a good thing,” said Wall Street analyst Mark Foster of Kirr Marbach & Co., in Columbus. “It shows Cummins has confidence in its business going forward, and the stock is cheap.”

The short-term boost in stock price due to the latest buyback announcement was significant, but the real story will unfold during the next 12 months as world markets either languish or improve, he said.

“I think the consensus among analysts is that Cummins’ earnings in 2013 will be higher than 2012. You could see the stock hit the $120 or $130 per share level without too much trouble, and if Europe and China turn around, things could be even better,” Foster said Friday.

Earlier this fall, Cummins said its sales were going to fall by $1 billion this year to $17 billion, and it would have to cut 1,000 to 1,500 jobs worldwide by the end of this year due in part to weaker sales in China, India and Brazil. The job cuts include as many as 150 layoffs in southern Indiana.

The stock buyback program comes on the heels of an earlier $1 billion share repurchase program the Cummins board of directors initiated in February 2011. Cummins also has raised its quarterly stock dividend twice in the past 18 months, most recently boosting it a dime to 50 cents per share this summer.

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