CMI

Lack of Analyst Enthusiasm for Cummins (CMI) Stock Explained

Cummins may be undervalued with poor growth indicators, but the 15 analysts following the company give it an rating of hold. Their target prices range from $259.0 to $345.0 per share, for an average of $304.66. At today's price of $291.15, Cummins is trading -4.43% away from its average target price, suggesting there is an analyst consensus of some upside potential for the stock.

Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide. Based in Columbus, IN, the Large-Cap Industrials company has 75,500 full time employees. Cummins has provided a 2.2% dividend yield over the last 12 months.

Cummins has a trailing twelve month P/E ratio of 21.4, compared to an average of 25.19 for the Industrials sector. Considering its EPS guidance of $21.53, the company has a forward P/E ratio of 13.5.

Cummins is also overpriced compared to its book value, since its P/B ratio of 4.39 is higher than the sector average of 3.17. The company's shares are currently 243.5% below their Graham number, indicating that its shares have a margin of safety.

The question is, why does Cummins have a bad rating if it is apparently undervalued in terms of traditional metrics? One reason could be the company's disappointing rate of margin growth, which in the analysts' opinion, will continue in coming years.

2018 2019 2020 2021 2022 2023
Revenue (M) $23,771 $23,571 $19,811 $24,021 $28,074 $34,065
Gross Margins 24% 25% 25% 24% 24% 24%
Net Margins 9% 10% 9% 9% 8% 2%
Net Income (M) $2,187 $2,268 $1,811 $2,164 $2,183 $840
Net Interest Expense (M) $114 $109 $100 $111 $199 $375
Depreciation & Amort. (M) $611 $672 $673 $662 $784 $1,024
Diluted Shares (M) 163 156 149 146 142 143
Earnings Per Share $13.15 $14.48 $12.01 $14.61 $15.12 $5.15
EPS Growth n/a 10.11% -17.06% 21.65% 3.49% -65.94%
Avg. Price $131.18 $146.05 $171.67 $229.34 $200.76 $291.15
P/E Ratio 9.94 10.04 14.22 15.56 13.21 56.1
Free Cash Flow (M) $1,669 $2,481 $2,194 $1,522 $1,046 $2,753
CAPEX (M) $709 $700 $528 $734 $916 $1,213
EV / EBITDA 6.5 6.96 8.86 10.01 8.52 15.76
Total Debt (M) $1,642 $1,607 $3,672 $3,638 $5,071 $4,920
Net Debt / EBITDA 0.1 0.14 0.09 0.31 0.82 0.98
Current Ratio 1.54 1.5 1.88 1.74 1.27 1.18
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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