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In this updated coverage research report, we reexamine Cummins, Inc. CMI 0.00%↑, an industrials sector enterprise, to see if it continues to meet QualityValue Investing’s (QVI) Real-Time Stock Picks criteria based on QVI’s proprietary checklist analysis of the business’s current wealth and the share price’s present value.
Cummins | Current Wealth
Value Proposition
Cummins is a dividend-paying large-cap stock in the industrials sector’s construction machinery and heavy transportation equipment industry. The stock was added to the QVI Stock Picks on May 24, 2022, at a cost basis of $184.20, adjusted for dividends paid to cash.
Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide. It operates through five segments: Engine, Distribution, Components, Power Systems, and Accelera. The company sells its products to original equipment manufacturers, distributors, dealers, and other customers. Formerly known as Cummins Engine Company, it changed its name to Cummins in 2001. Founded in 1919, Cummins Inc. is headquartered in Columbus, Indiana, USA.
Economic Moat
Morningstar assigns Cummins a narrow moat rating based on its intangible assets and customer switching costs. The analysis notes that Cummins enjoys strong brand loyalty among customers, even in the face of fierce competition in the industry. The company’s solid reputation stems from its proven track record of consistently delivering durable and fuel-efficient products to customers.
QVI’s Value Proposition Elevator Pitch for Cummins
Cummins is a dependable manufacturer of truck diesel engines, recognized for its commitment to customer accountability and for leading the industry toward low—if not emissions-free—heavy transportation equipment.
QVI’s value proposition rating for Cummins: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
As the table below shows, Cummins’ trailing three-year annualized revenue growth was low-double-digit positive and aligned with the S&P 500’s topline growth of +14.10%. However, the company’s flat revenue growth of +0.11% underperformed the broader market’s +17.70% increase for the most recently reported twelve months.
Cummins had a double-digit net profit margin from a 25.06% gross margin, which underperformed the S&P 500’s net profit margin of 22.60% from a gross margin of 56.10%.
Returns on Equity and Invested Capital
Cummins’ senior management produced a return on equity (ROE) triple QVI’s targeted threshold. In addition, the ROE aligned with the S&P 500’s 55.80%.
Stock buyback programs can elevate ROE. However, Cummins has not repurchased shares in significant amounts since 2022. Nevertheless, the company bought back shares at an average cost of between $156 and $219, a value price range compared to its current stock price.
Cummins’ return on invested capital (ROIC) doubled QVI’s threshold and aligned with the broader market’s return of 24.10%. In addition, the company’s ROIC doubled its weighted average cost of capital (WACC), indicating that its senior executives are excellent capital allocators. (Source of WACC: GuruFocus)
Owners’ Earnings
In an additional evaluation of fundamentals related to shareholder value, Cummins’ five-year trailing performance in owners’ earnings—comprising annualized EPS growth and dividend rate growth—was in the high double digits. This result reflects an exceptional return rate for shareholders from a large-cap engine and related equipment manufacturer. Notably, its one-year EPS growth was robust at +452.08%.
QVI’s business fundamentals rating for Cummins: Bullish.
Click or Pinchout to Expand
Next, we’ll examine the company’s enterprise downside risks, the stock price’s present value, including share price downside risks, and the investment thesis, all exclusive to Quality Value Investing’s premium (paying) subscribers.
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Unless noted, all data presented is sourced from Charles Schwab & Co., Yahoo Finance, and Cummins, Inc. as of the market close on February 11, 2025, and is intended for illustrative purposes only.
Disclosure: As of the writing of this research report, I/we hold no beneficial position in CMI common shares in our family portfolio. I wrote this report myself, expressing my own opinions. I am not receiving compensation for it other than from subscriptions paid to Substack. I have no business relationship with any company whose stock is mentioned in this post.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, meaning they are not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in independent research or due diligence and consider consulting a fee-only certified financial planner, a licensed discount broker/dealer, a flat-fee registered investment adviser, a certified public accountant, or a specialized attorney before making any investment, income tax, or estate planning decisions.
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