Cummins Inc – Now Approaching Deep Value Territory

Cummins Inc

Cummins Inc (CMI) is a well diversified global diesel engine manufacturer. The company designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, after treatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems. The company boasts huge market shares around the globe and has grown its business via acquisitions, partnerships and joint ventures. The technical leadership and supply chain system gives it an edge over its competition. While the industry faces cyclical weaknesses, the company firmly believes future growth to come from emerging markets and remains focused.

The stock has been punished severely and is down 38% since a year ago. The forward guidance has been for a slightly lower revenue (down 5.5% for FY2016) and earnings are expected to suffer 9%. While this is bad news for investors, the market, as it usually does, over-punished and the stock remains primed for a delicious return. F.A.S.T Graphs predicts a rate of return of 113% if the company returns to its normal P/E of 15. Based on the combination of valuation metrics described in the article, the fair value calculated is $155.16, indicating the stock is undervalued by 45%.

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2 thoughts on “Cummins Inc – Now Approaching Deep Value Territory

    • Hi FI,
      Are you suggesting that commodity prices will never recover? Ever? Its a cyclical industry and the reduced demand from emerging markets coupled with a strong US$ which is putting pressure on the commodity market, but eventually things will stabilize and turn around. CMI also has a big part to play in transportation – and their specialization is in diesel engines. While there is some nascent threat of electric vehicles – that is only for the short range and in small vehicles. The battery technology hasnt developed enough to support long ranges that is the main market for the long range transport – where diesel engines and CMI come in.


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