CMI Cummins
Strong industrial franchise, but the stock still prices in too much perfection.
The story
Cummins is a high-quality industrial engine and powertrain franchise with strong distribution, service relationships, and engineering credibility, but it is a mature cyclical manufacturer rather than a secular compounder. Electrification, emissions regulation, and power-generation demand give it reinvestment opportunities, yet diesel-cycle exposure and heavy industrial cyclicality keep normalized economics grounded. At the current price, the market is discounting a margin and growth outcome well above what the recent revenue and margin record supports.
I am keeping the prior core drivers because the updated facts do not show a structural change: revenue is roughly flat recently after a strong cycle, TTM margin is near 12%, and sales-to-capital remains around 1.7. The 13.5% target margin assumes Cummins recovers toward good-cycle industrial economics but does not capitalize peak 15% margins, while 4% near-term growth and 2% terminal growth reflect a mature franchise growing below nominal GDP after the cycle normalizes.
Value drivers
| Revenue growth (Y1) | 4.0% |
| Terminal growth | 2.0% |
| Forecast horizon | 8y |
| Target operating margin | 13.5% |
| Years to target margin | 7 |
| Sales-to-capital | 1.70 |
| Beta | 1.10 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 9.1% |
| Terminal WACC | 8.7% |
Valuation bridge
| PV of explicit FCFF | 16.90B |
| PV of terminal value | 28.41B |
| Equity value | 39.15B |
| ÷ shares → per share | $283.71 |
News
neutral +0.10 · 8 articles
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- Here is why Cummins Inc. (CMI) is among the Best Fusion Energy Development Stocks to Buy
- 4 Auto Stocks Wall Street Analysts Recommend Buying Now
- Truist Raises its Price Target on Cummins (CMI)
- Cummins (CMI) Stock Looks Reasonably Priced After Its 207% Five Year Run
- Is Cummins (CMI) Reclassification Into Growth Indexes Quietly Reshaping Its Investment Narrative?
- Cummins (CMI) Stock Sees Fair Value Lift As Analysts Raise Targets On Power Demand
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 35.25B | 4.0% | 12.3% | 3.24B | 797.51M | 2.44B | 2.24B |
| 2 | 36.56B | 3.7% | 12.5% | 3.41B | 770.16M | 2.64B | 2.22B |
| 3 | 37.81B | 3.4% | 12.7% | 3.59B | 737.33M | 2.85B | 2.19B |
| 4 | 39.00B | 3.1% | 12.9% | 3.76B | 699.05M | 3.06B | 2.16B |
| 5 | 40.12B | 2.9% | 13.1% | 3.92B | 655.48M | 3.27B | 2.11B |
| 6 | 41.15B | 2.6% | 13.3% | 4.08B | 606.78M | 3.48B | 2.06B |
| 7 | 42.09B | 2.3% | 13.5% | 4.24B | 553.23M | 3.69B | 2.00B |
| 8 | 42.93B | 2.0% | 13.5% | 4.32B | 495.14M | 3.83B | 1.91B |
Key risks
- Cyclical downturn in truck, construction, mining, or power-generation demand
- Margin pressure from emissions compliance, electrification investment, and input costs
- Market expectations embedding too much permanence in peak-cycle profitability
Catalysts
- Truck and power-generation demand stabilizes without a sharp earnings reset
- Cost discipline and mix improvement move operating margins back toward mid-teens
- Clearer returns from alternative powertrain and emissions investments