Cummins, Inc – CMI

CMI is a designer, manufacturer and servicer of diesel and natural gas engines, and electric and hybrid powertrains throughout the world. 

It operates through five segments: 

• Engines
• Distribution
• Components
• Power Systems
• New Power

They operate in the heavy and medium-duty truck, bus, recreational vehicle, light-duty automotive, construction, mining, marine, rail, oil and gas, defense, and agricultural markets.

The company was founded in 1919 and is headquartered in Columbus, Indiana.

(Source: Cummins Investor Relations)

https://investor.cummins.com

Some metrics I look for – 

Safety:

Dividend Safety Score – 98 out of 99 – considered “very safe”

Current Ratio (look for a number higher than 1, higher the better) – 1.8

Debt to Equity (lower the better) – 0.49

Payout Ratio – 35.80%

Estimated Earnings Growth Rate – 5 year – 19.02%

Dividend history: 

Years of dividend increases: 17

Dividend growth rate – 5 year – 6.96%

Current yield: 2.55%

Current dividend: $5.80

Valuation: 

DCF model:  $383.46

P/E Mean Reversion: $235.91

Dividend Yield Theory: $215.61

Average of the three valuations – $278.32

Analyst Consensus Estimate (1 Year) – $276.73

Current price: $227.25 (02/03/2022)

Potential discount: ~22%

Commentary:

CMI brought in revenue of $24 Billion in 2021 compared to $19.8B in 2020.  They operate in over 190 countries around the world.

While they produce internal combustion engines now, one of their top priorities is developing clean energy solutions including advanced diesel, natural gas, electrification, fuel cells, alternative fuels and advanced energy solutions.

They have very high ESG and sustainability goals, including:

• Reduce absolute greenhouse gas (GHG) emissions from facilities and operations by 50%.
• Reduce scope 3 absolute lifetime GHG emissions from newly sold products by 25%.
• Partner with customers to reduce scope 3 GHG emissions from products in the field by 55 million metric tons.
• Reduce volatile organic compounds emissions from paint and coating operations by 50%.
• Create a circular lifecycle plan for every part to use less, use better, use again.
• Generate 25% less waste in facilities and operations as percent of revenue.
• Reuse or responsibly recycle 100% of packaging plastics and eliminate single-use plastics in dining facilities, employee amenities and events.
• Reduce absolute water consumption in facilities and operations by 30%.

(https://www.cummins.com/company/esg/environment/planet-2050)

(https://www.cummins.com/company/esg/environment)

As green energy is the way forward, it is great to see the company lean into this mindset and technology as this will help them be a leader in the industry and provide future growth levers to continue to dominate the transportation industry.

The company is also focused on shareholder value, with the company returning a total of $2.2 billion to shareholders in the form of dividends and share repurchases in 2022. The company’s financials are strong, margins and other metrics are good, and the valuation is reasonable for a top quality company in the industrials industry.

Let me know what you think!

Disclosure: I own CMI.