Cummins Inc. (CMI)

http://www.cummins.com

Sector: Industrial Goods

Industry: Diversified Machinery

Market Cap: $12.9B

Dividend Yield: 1.15%

Consensus EPS current year: $2.41

Consensus EPS next Year: $3.86

Estimated 5 year Growth Rates: 12%

Company Description:

Cummins 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 Products:

Cummins complementary business units design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air handling, filtration, emission solutions and electrical power generation systems.

Thesis:

While CMI has had a nice run YTD, there is still plenty of room in this stock. CMI is the technology leader with the strongest product line relative to its peers. It is the largest manufacturer of natural gas and hybrid bus engines in the United States. CMI has exposure to high growth markets with 60% of its sales derived from international markets (30% from Asia). The company should benefit from long-term growth trends related to the changing global emission standards over the next five years as well as growing infrastructure and the need for cleaner energy.

While CMI’s sales are expected to grow at a double-digit rate through 2014, its profitability looks even more promising. CMI has recently taken restructuring initiatives to lower costs and improve operational efficiency. The company is expecting 12.5% EBIT by 2014, up from 7.2% in 2009. Given CMI’s strong management team and its positioning in the marketplace, this seems to be an achievable goal. Furthermore, CMI boasts a strong balance sheet and an industry leading ROE of 12.2%. The stock is trading at 16x forward estimates, given normalized earnings; we believe the stock has nearly 20% upside from current levels.

Catalysts:

• With over 65% of CMI’s revenues tied to early cycle activities, we expect that economic indicators, specifically improvements in industrial production will continue to bode well for CMI.
• We look for a continued upward revisions to analysts’ estimates.
• Possible dividend increase and stock buyback.

2009 Key Statistics
Revenues	$10.8B
EBIT	$683M
Net income	$428M
Operating margin	6.30%

Five Year Stock Performance

morningstar.com

CMI Financials
	2007	2008	2009
Income Statement
Revenue	13,048	14,342	10,800
Operating Income	1,158	1,272	682
Net Income	739	755	428
Basic EPS	3.72	3.87	2.17
Avg. Diluted Shares Outstanding	200	197	198
Balance Sheet
Current Assets	4,815	4,713	5,003
Non Current Assets	3,380	3,806	3,813
Total Assets	8,195	8,519	8,816
Current Liabilities	2,711	2,639	2,432
Total Liabilities	4,786	5,289	5,043
Shareholder Equity	3,409	3,230	3,773
Cash Flow
Cash From Operations	810	987	1,137
Capital Expenditures	-420	-543	-310
Free Cash Flow	390	444	827

Earnings Estimates

http://phx.corporate-ir.net/phoenix.zhtml?c=112916&p=irol-estimates