Today, Cummins Inc (CMI, Financial) experienced a daily loss of 2.4%, yet it has gained an impressive 15.31% over the last three months. With an Earnings Per Share (EPS) of 13.59, investors might wonder if Cummins is fairly valued at its current price. This article delves into Cummins' valuation, encouraging readers to explore the detailed analysis that follows.
Company Overview
Cummins is a leading manufacturer of diesel engines, power generators, and related components, competing in a dynamic market alongside its primary customers, heavy-duty truck manufacturers. Despite the intense competition and regulatory pressures, Cummins has maintained a strong industry position. As of today, the stock is priced at $291.45, closely aligning with its GuruFocus Fair Value (GF Value) of $292.36, suggesting that the stock is fairly valued. Below is an income breakdown of Cummins, providing a snapshot of its financial performance.
Understanding GF Value
The GF Value is a proprietary measure reflecting the intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Cummins, the GF Value suggests the stock is fairly valued, indicating that its market price is in line with the calculated intrinsic value. This alignment suggests that the long-term return of Cummins' stock should closely mirror the company's business growth rate.
Financial Strength and Stability
Investing in companies with robust financial strength reduces the risk of permanent capital loss. Cummins' cash-to-debt ratio is 0.42, which, while lower than many of its peers, still supports a fair financial strength rating from GuruFocus of 6 out of 10. Here is a visual representation of Cummins' debt and cash flow over recent years:
Profitability and Growth Metrics
Cummins has demonstrated strong profitability, with a consistent performance over the past decade. Its operating margin stands at 3.92%, reflecting solid profitability within the industry. However, its growth metrics show some challenges, with a 3-year average EBITDA growth rate of 0.5%, placing it below many competitors. This mixed financial picture highlights the importance of considering both profitability and growth in investment decisions.
Comparative Analysis of ROIC and WACC
An effective way to gauge a company's profitability is by comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). Cummins' ROIC is currently 4.48, which is below its WACC of 9.84, suggesting that it may not be creating value over its costs. This comparison is crucial for understanding the efficiency of capital use within the company.
Conclusion
Overall, Cummins (CMI, Financial) appears to be fairly valued at its current market price, reflecting its financial condition and market performance. While its financial strength and profitability are commendable, potential investors should consider the slower growth rates and the current ROIC versus WACC dynamics. For more detailed financial insights on Cummins, interested readers can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
