Cummins Inc Firing on all cylinders Currently undervalued

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Cummins Inc Firing on all cylinders Currently undervalued

Published Date: 2018-09-06 | Source: Share Picks USA | Author: Bruce Ingram | Comments

Cummins Inc Firing on all cylinders Currently undervalued

Company profile for Cummins Inc. (CMI)

The company was founded in 1919. Sales are organized into 9 distinct business segments.

  • Engine Segment
  • Power Systems Segment
  • Components Segment
  • Cummins Filtration
  • Cummins Turbo Technologies
  • Cummins Emission Solutions
  • Cummins Electronic and Fuel Systems
  • Distribution Segment
  • Electrified Power Segment

The company has 35% of the medium and heavy-duty truck engine segment in North America. Largely due to its ability to meet the stringent emission reduction standards introduced over the last 10 years. Caterpillar chose to exit this market in 2009 rather than invest in research to meet these standards. This strengthened Cummins's moat in this segment. Cummins has spent over $2 billion on research recently improving fuel efficiency and reducing emissions establishing itself as a market leader in this respect.

The company has over 7,500 dealer locations across 190 countries allowing it to provide excellent service and repair support.

The cyclical nature of the business means that this may not be a buy and hold share. However, CMI has paid dividends for more than 25 years.

The life of diesel engine sales market is limited. Germany is proposing to ban sales of new internal combustion engines after 2030. China is also considering banning diesel engines as well. California is considering banning diesel powered vehicles by 2040. Cummins is working on natural gas, hybrid and electric engines to cater for market changes.

For 2018 the company is forecasting revenues to be up 15% to 17%.

Dividend Yield is 3.2%. The 5-year dividend growth rate has been 18.8% a year. The dividend has grown for the last 13 years. The dividend yield is 23% above its 5-year annual dividend yield. The company only pays out 38% of its earnings as a dividend.

The company has an A+ S&P credit rating, a low debt to capital of 19%. Annual revenue is $22 billion

Currently the P/E ratio is 12.29

Analysts are forecasting a earnings growth of 11.3% This combined with the share price returning to its normal P/E plus dividend income could see an annualized ROR of 45% by the end of 2019. However, I would keep an eye on the share due to the cyclical nature of their business which is impacted by commodity cycles.


Disclaimer: Please note that I am not a Registered Financial Planner. The articles I write are based on my own personal research and for my own use and is not to be construed as financial planning advice. At all times readers are urged to exercise caution when investing in any financial instruments, to do their own research


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