Cummins (NYSE: CMI)
Quality Value Investing Research Report | $CMI Updated Coverage | July 2024
Summary:
Cummins Inc. is a trusted truck diesel engine manufacturer leading the industry in transitioning to low-emissions transport.
The company’s current wealth shows solid fundamentals with positive revenue growth, high profit margins, and adequate returns on equity and invested capital.
Cummins’ present value reflects average shareholder yields and fair value multiples, contrasted by below average share price downside risks.
In this updated research report, QVI reiterates its coverage rating of Cummins and its common shares in the Expanded Real-Time Stock Picks.
When referencing this research report, access your Quality Value Investing (QVI) Glossary of Investing Terms and Metric Targets and Research Report Format Guide. Unless noted, all data presented is sourced from Seeking Alpha Premium as of the market close on July 18, 2024, and intended for illustration only.
In this updated coverage QVI Research Report, we’ll reexamine the Expanded Real-Time Stock Picks industrials sector holding, Cummins Inc., to see if it continues to meet Quality Value Investing’s criteria based on our checklist analysis of the business’s current wealth and the share price’s present value.
Cummins | Company Current Wealth
Value Proposition
Cummins Inc. CMI 0.00%↑ is a dividend-paying mid-cap stock in the industrials sector’s machinery & heavy transportation equipment industry. It was added to the QVI Real-Time Stock Picks on May 24, 2022, at $186.23 cost basis per share, adjusted for splits and dividends.
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.
It sells its products to original equipment manufacturers, distributors, and dealers. The company was formerly Cummins Engine Company and changed its name to Cummins Inc. in 2001. Cummins was founded in 1919 and is headquartered in Columbus, Indiana, USA.
Economic Moat
Morningstar assigns Cummins a narrow moat rating weighted toward its intangible assets and customer switching costs.
QVI’s Value Proposition Elevator Pitch for CMI:
Cummins is a trusted truck diesel engine manufacturer that leverages its reputation for customer-driven responsibility and leads the industry in transitioning to low, if not emissions-free, transport.
QVI’s value proposition rating for Cummins: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
Per the chart below, Cummins’s trailing three-year annualized revenue growth was double-digit positive, outperforming the industrials sector’s +4.99% median growth. The company’s topline growth was a positive +12.85% for the most recently reported twelve months.
Further down the income statement, Cummins’s three-year, high-single-digits positive net profit margin outperformed the sector’s median net margin of +6.06 %.
Returns on Equity and Invested Capital
Cummins’s senior management produced a three-year double-digit return on equity, or ROE, above QVI’s targeted threshold while beating the sector’s median ROE of +12.40%.
Stock buyback programs often elevate ROE. For example, from 2019 to 2022, Cummins repurchased $2 billion of its outstanding shares. However, there is no record of purchases for 2023 or 2024. Are they suspending share buybacks because of intrinsic value issues with the share price? The valuation section later in this report will address that question.
Cummins’s three-year return on invested capital, or ROIC, was above QVI’s threshold and the sector’s median ROIC of +7.19%. In addition, CMI’s ROIC exceeded its weighted average cost of capital, or WACC, of 9.37%, demonstrating that its senior executives are adequate capital allocators. (Source of WACC: GuruFocus)
QVI’s business fundamentals rating for Cummins: Bullish.
Next, we’ll look at the company’s returns on management chart, enterprise downsize risks, the stock price’s present value, share price downside risks, and the investment thesis, each exclusive to Quality Value Investing’s premium (paying) subscribers.