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Cummins Inc

In: Business and Management

Submitted By dmcneil
Words 739
Pages 3
Cummins Inc. (CMI) Company Analysis and Stock Recommendation
Executive Summary
Investors looking for slight to moderate risk with a strong financial position and revenue growth while maintaining good cash flows should buy Cummins Incorporated stock. This recommendation is based on opportunity for revenue growth, positive stock performance, and debt measures.
Company Overview
Cummins Inc. is a global power leader that designs, manufactures, sells and services diesel engines and related technology around the world. Cummins serves its customers through its network of 500 company-owned and independent distributor facilities and more than 5,200 dealer locations in over 190 countries and territories. Cummins was founded in 1919 and currently ranks 186 on the Fortune 500 list. Cummins is headquartered in Columbus, Indiana and currently holds 46,000 employees worldwide.
Analysis
Stock Price: $147.18, 52 week High: $151, 52 week Low: $103.41, Price to Book: $3.66, Beta: 1.89
P/E Ratio
Cummins Inc. currently has a P/E ratio of 18.6 which is below the industry average of 20.5. The comparison of these two ratios suggests that Cummins may be slightly undervalued in the industry. This P/E ratio suggests that investors expect growth in the future for Cummins Inc.
PEG Ratio
The current PEG ratio for CMI is 1.17 and the industry shows a PEG of 1.23. This comparison shows that CMI is relatively fairly priced.
Dividends and EPS
Cummins Inc. has raised their dividend per share steadily per year. The dividend has gone from $.40 in 2012 to $.625 earlier this year. Since CMI posts a higher dividend yield rate than the rest of its industry at 1.7%, one can say that the investors are receiving more cash flow per dollar invested or a bigger “bang for their buck”. The annualized dividend for the company is $2.50.
Liquidity, Solvency, and Cash Flow
Cummins seems to be more than capable of meeting any of its short-term obligations based on its current ratio of 1.6. The company posts a much lower than industry average debt to equity ratio of .2. This leads one to believe they are careful in what they use to finance their activities and do not heavily rely on debt to finance these things. The company also reported a 1.33B dollar increase in cash in 2013 after reporting a negative change of 115M dollars in 2012.
Profitability
Cummins posts a gross profit margin of 25.3% which is lower than the industry average of 41.2%. CMI shows a greater year to year (6.9%) and 5 year (6.02%) revenue growth rate than the rest of its industry. This is not surprising considering the contracts and new products that are in Cummins’ future.
Return on Investment
CMI shows a much higher ROE and ROA than its industry. With the ROA percentage at 10.9% for CMI and 2.7% for the industry it is clear that CMI is making more money off of less investment meaning they are better using their assets. CMI has an ROE of 21% almost 10 points higher than the industry. This tells me that they are making more than enough money to take care of their investors.
Risk Factors
The company is very dependent on rules and regulations passed in regards to emissions and other parts of their products. As emissions and MPG standards become stricter, CMI must provide new products that meet these regulations. Infrastructure development has slowed especially in foreign countries like China and Brazil which could cause Cummins to see a slow in business. These two seem to be the most threatening risks involved and in my opinion neither of these are huge problems.
Growth
Over the next five years CMI is expected to show a 14.51% growth in earnings. Analysts expect a 16.46% increase in earnings this year and an increase of 22.58% next year. These numbers seem to be promising and I personally like what Cummins has planned for their future products.
Conclusion
Cummins Inc. has set up for potential high growth which leads to high potential return. The company is financially sound and shows very strong ROE and ROA numbers. Dividend numbers have consistently increased within the past few years and everything is still pointing up as of now. This stock is right for someone looking for a sound investment with a possibility of greater returns in the future.

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