Cummins Is Going for a Deep Discount

by Ed Elfenbein | June 28, 2012 7:00 am

cumminsIt’s hard not to be impressed by Cummins (NYSE:CMI[1]). Here’s a company description from Hoovers[2]:

If it’s comin’ around the mountain, it could have a Cummins’ engine powering it. The company makes about half of its revenues from its Engine segment which makes diesel and natural gas powered engines for the heavy and mid-duty truck, RV, automotive, and industrial markets, along with marine, rail, mining, and construction. Its other complementary business segments include Components (filtration products and fuel systems); Power Generation (vehicle and residential generators); and Distribution (product distributors and servicing). Major customers include OEMs Chrysler, Daimler, Ford, Komatsu, PACCAR, and Volvo. About two-thirds of Cummins’ sales are from outside the US.

The stock is currently hovering around $90 per share, with a most-recent 52-week high of $129.  Wall Street expects earnings of $10.55 per share for this year and $11.79 per share for 2013.

In May, Cummins said they see[3] sales rising by 10% this year with EBIT in the range of 14.5% to 15% of sales. They had $18 billion in sales last year, so a 10% rise comes to $19.8 billion, and EBIT works out to $2.87 billion to $2.97 billion. The current market value is just over $17 billion.

The last six earnings report have beaten expectations, sometimes by a very hefty margin. My simple stock valuation method gives Cummins fair value of $157.

As I’ve said before, I don’t view the valuation method as a precise tool, but it’s a good quick way to see how reasonably a stock is valued. Cummins looks to be very inexpensive.

  1. CMI:
  2. Hoovers:
  3. Cummins said they see:

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