Cummins Inc.

(New York Stock Exchange)
Back to all articles
Bullish +65

Cummins Inc. (NYSE:CMI) Passes the Caviar Cruise Quality Screen with Strong Growth and Profitability - ChartMill

AI-generated analysis

πŸ“ˆ Cummins achieved a 7.95% revenue CAGR and a superior 16.87% EBIT CAGR over the last five years, indicating strong margin expansion.

πŸ’° The company boasts an ROIC of 17.35%, well above the 15% minimum required by the Caviar Cruise quality screen.

πŸ›‘οΈ Financial resilience is evidenced by a Debt-to-Free Cash Flow ratio of 2.88 and a Profit Quality score of 116.63%.

πŸ“Š Analysts forecast accelerating EPS growth of 17.41% annually, outpacing the historical average of 13.03%.

πŸ† Cummins ranks in the top 89% of Machinery sector peers for Return on Equity and shows very low bankruptcy risk with an Altman-Z score of 5.01.

πŸ’Έ The dividend history is commendable with over 10 years of consistent payments and a 7.87% annual growth rate.

βš–οΈ Valuation metrics are mixed, with a trailing P/E of 29.39 versus a forward P/E of 19.28 reflecting expected earnings growth.

πŸ“‰ Minor concerns include a relatively high payout ratio and a slight increase in shares outstanding over the past year.

Bullish Signals
  • Cummins demonstrates superior profitability growth with an EBIT CAGR of 16.87% significantly outpacing its revenue CAGR of 7.95%.
  • The company generates exceptional returns on capital with an ROIC of 17.35%, indicating efficient deployment of invested funds.
  • Profit quality is outstanding at 116.63%, suggesting the company converts more than 100% of net income into free cash flow.
  • Analyst consensus projects a significant acceleration in earnings growth to 17.41% annually, compared to the historical 13.03% CAGR.
  • Cummins exhibits very low bankruptcy risk with an Altman-Z score of 5.01 and beats 89% of industry peers on Return on Equity.
  • The dividend track record is strong with over a decade of consistent payments and a robust 7.87% annual growth rate.
Risk Factors
  • The trailing P/E ratio of 29.39 is above the industry average of 28.04, suggesting the stock may be priced at a premium.
  • The payout ratio is described as relatively high, which limits flexibility for increasing dividends or buying back shares during downturns.
Full Analysis
Cummins Inc. (NYSE:CMI) is highlighted as a strong candidate for the 'Caviar Cruise' quality investing screen, which targets high-growth, profitable companies with durable competitive advantages. The company has demonstrated robust financial performance over the past five years, with revenue growing at a compound annual rate of 7.95% and EBIT expanding at an even faster pace of 16.87%. This divergence between profit and revenue growth signals improving operational efficiency and pricing power. The article details Cummins' strong capital allocation metrics, noting a Return on Invested Capital (ROIC) of 17.35%, which significantly exceeds the screen's 15% threshold. Additionally, the firm maintains a healthy Debt-to-Free Cash Flow ratio of 2.88 and an exceptional Profit Quality score of 116.63%, indicating efficient conversion of net income into cash flow. These fundamentals suggest a financially resilient business capable of compounding value over time. Analyst expectations remain constructive, with consensus projecting annual EPS growth of 17.41% compared to the historical CAGR of 13.03%. While the trailing P/E ratio is slightly above the industry average, the forward P/E and PEG ratio suggest a reasonable valuation given the expected earnings acceleration. Cummins receives a fundamental rating of 6 out of 10 against industry peers, with strengths in profitability and solvency offsetting concerns regarding payout ratios and share dilution.