Cummins Inc.

Tesla, Inc. Common Stock

Tesla (**$TSLA**) pioneered EVs, and now the industry is packed with competition. EVs are great for the average commuter, but will Tesla/others have solutions for powering the trains, boats, construction vehicles, etc that make the world go 'round? Unlikely.
​
My stock pick might be the solution.
​
Cummins is a global power leader that designs, manufactures, distributes, and services diesel, natural gas, and now electric and hybrid powertrains. They sell to original equipment manufacturers (OEMs), distributors, and dealers in 190 countries for various uses from Ram pickups, heavy machinery, trains, and more.
​
![image](https://cdn.commonstock.com/dbb8271ae9e633262d65e9bdaf5d1ba02a267cce3c14472e238779446c4afe93-704x240.png)
​
Since 2002, Cummins has outgrown competition and the segments they serve with 6.3% revenue CAGR. Cummins has also grown total revenues from $5.6B to $24B and net income from -$103M to $2.1B with 6.7% average net income margin and 22.2% average ROE.
​
![image](https://cdn.commonstock.com/736a57b961793756781aa6ac1d82c2b4cf8c2d2d06ea5580d2be08c61cbab3a4-704x364.png)
​
![image](https://cdn.commonstock.com/494eed72f2c877aaff82272e89d895828fffcc16fe69a7a66546bc2e50519eeb-704x264.png)
​
Cummins has great capital allocation with $3B cash, $4.9B debt (1.3% is current), great credit access, strategic acquisitions (recently OEM Meritor) and $1.3B FCF which they use for dividends (2.29% yield) and $2B of share buybacks.
​
**Thesis:**
Attractive valuation and economic and political tailwinds are at Cummins’ back as potential catalysts for growth.
​
1. New Power
​
Cummins commercialized diesel engines in 1919 and continues to make innovations and improvements to powertrains. They offer the most fuel and emission efficient engines in the market and invest heavily in R&D to anticipate, prepare for, and exceed the changing regulations in advance (EPA regulations have reduced emissions by 90% this decade).
​
Some states, China, Germany, and other countries have announced plans to ban the use of diesel or other internal combustion engines by 2030. Cummins knows that zero emissions is the goal in the coming decades and are investing now to ensure they remain the power leader for a changing world.
​
"New Power" is Cummins' newest operating segment. It is focused on zero emission and zero carbon solutions. Cummins has a large customer base and strategic partnerships, all needing decarbonization answers.
​
![image](https://cdn.commonstock.com/698c1ff33a8d5695b55fe78694564a888281c4ee1d1873928323dca482815c40-704x258.png)
​
Cummins believes the path to zero emissions creates a market opportunity of $100B for 2030. They will service that market by being an integrator and component supplier. Their components business will grow by providing efficient filtration, emissions collectors, and other components to aid emission reduction efforts. When regulations require net zero, Cummins will have already accelerated adoption of FCEV, BEV, and hydrogen systems among their customers before the regulations occur.
​
![image](https://cdn.commonstock.com/ac9effb188718a026781c24b11adab71d7f36805d2b4377d914cde8a6b65bd1d-704x373.png)
​
Cummins’ New Power financial targets are $6-13B revenue in 2030 (approx. 15%-28% total projected revenue) with ~$1.3B cash outflow of operations from 2022-2027 reaching breakeven in 2027. With continued worldwide engine population growth and a high-margin component segment, Cummins forecasts EBITDA to grow >20% by 2030. I believe these goals are not overly ambitious.
​
2. Food Prices
​
Global food prices have jumped 40% since the beginning of the pandemic. The Russia-Ukraine war also contributed to a spike in food prices earlier this year as they are substantial exporters of wheat, barley, sunflower oil, and fertilizer. Food prices have been easing but have a long way to go before returning to the norm.
​
Cummins has over 1 million agricultural engines in operation worldwide. Their products provide greater fuel efficiency, horsepower, durability, and less ownership costs than competitors. During periods of high food prices, farmers can widen margins if they manage COGS and I expect this benefit to extend to Cummins as farmers look to their products to unlock efficiencies and savings.
​
3. Valuation
​
![image](https://cdn.commonstock.com/3c70096e76e8951bde167784663d8f459865abb2d3fe8b7d82ce060fe5830e42-704x542.png)
​
Using a 10-year timeframe and above assumptions, **$CMI** appears undervalued with potential long-term and short-term returns per the model and thesis.
​
**Risks:**
​
* Freight Demand: Cummins is sensitive to freight demand. With a looming recession, consumer spending could slow causing truck operators to delay new fleet purchases.
​
* Regulation: Though regulation is my main bull case, strict regulation could push competition to invest in technologies and dull Cummins’ edge.
​
* Inflation: Cummins’ COGS has increased via more expensive materials and shipping costs. They have raised prices to counter, improving margins for two quarters. However, continued price increases could pose a problem.
​
Author’s Statement
​
I have a position of 2.372312 shares with $209.56 average cost. Understanding the potential upside and risks, I plan to hold, buy more shares, and reinvest dividends long-term. Below is a screenshot of **$CMI** trending in Commonstock mentions on 8/31/22 and linked is a verified purchase.
​
![image](https://cdn.commonstock.com/61cb9a86570f0c13b51c16b98ab5f55a454ac3a2aeed222d4dad3d977a6bbea0-678x1350.png)

Really awesome to see companies like
Cummins innovating and improving their
products to support sustainability efforts.
As the demand for EVs and clean power
increases, and populations also increase,
believe that Cummins will be a major
player in this market due to their ability to
make engines that support the
transportation of needed goods
throughout the world while also making
changes to affect current issues like
pollution, climate change, etc. It may be a
while for this innovation to be fully
implemented and at a place where their
supply meets their demand, especially if
lead times on parts and semiconductors
stay where they've been in the last few
years. But until then, I believe that this
stock could be a great investment,
especially for the long-term.

Carena

Cummins will be around for a while, they’ve consistently been a name that is associated with durability and quality. You could say in the future we’re gonna see a lot more Cummins than a lot more Goings y’knaw I mean?

Tommy

Heavy industrials with solid FCF and a growing dividend? Where do I sign up? 

Great write up, sir!

Scoreboard Investor

The great report,I believe that Dodge put Cummins on the map with normal people. I think they are just going to continue to grow.

Mark Stewart

You sparked my interest in this company and it's 100+ year commitment to new solutions.  Because of your analysis, I further researched and found that they have been making consistent progress and improvements on emissions for a cleaner environment since 1970.  Impressive.

Susan

You mentioned they’re sensitive to trucking orders, how much of a risk/downside do you think there is for that?

Tyler

Great article!! Thank you for the insight 

Gelila

Good insight into Cummins and their future prospects. I can see them growing in the future as well with the growth in population, infrastructure, and shipping. If they are able to successfully implement their transition to electric and other sustainable options. They also have strong options in hydrogen and natural gas, which are great gas alternatives for fleets.

Great report! Very informative and was structured very well.

Jonathan Gunsolley

Amazing insight!!![image](https://cdn.commonstock.com/bda934cd9e67532f8e71c393ca1e5d6db31e1d4600fe19b9139142f587a28848-480x400.gif)


Lissa

Always important to understand the other side of the coin when it comes to EV plays. $CMI sounds really interesting, and I may need to add it to my watchlist!

Tim R.

Good job on this report! One of the best i’ve read!

Colt

Dividend Kid

Wow! Very informative, glad I read this love the details. 

Great post! EVs and sustainable energy solutions are the future, so it's definitely a good move by Cummins to get on the ground early and establish themselves as a key player in that field. Hopefully they'll reap even greater profits as the world relies more on what they're investing in.

Mitch Reid

scarlet

Totally makes sense that Cummins is the way to go and has such potential for growth while maintaining its reputation for innovation and quality. 

Rox Gunso

Everyone has to continue to innovate to stay relevant! Great article

Andrew gomez

Great insight! Excited to see what this stock does in the future!

Dale

I don't usually find an interest in investment and stock media, however, I found this post extremely well written, compelling and informative. Made the aforementioned information digestible to someone who is not well-versed in the investment field. Great job @dividenddollars

Ainsley Cotter

Exciting to see such a factual and informative article on something that can be so hard to understand!

Margot

Interesting post, thanks for sharing! Insightful and well written.

Regarding your second point, about global food price, I believe you may have some figures wrong. Global food prices have surged 65% since the start of the Covid-19 pandemic and by 12% this year since the start of the Russian invasion of Ukraine, according to data from the United Nations' Food and Agriculture Organization. Russia and Ukraine are definitely a factor, but the increase is not as high as indicated in your post.

Cade Williams

Zero emissions?!? I’m game! 
I don’t find these topics easy to hold my attention or understand how it all works. But surprisingly this was easy to understand and very informative. I hope other companies follow this path. Thanks for adding pictures for my dyslexia to get breaks lol

Gabe

Thought provoking article. Worth a deeper look. 

Chris

Investing in climate-conscious companies is super important to me, so I’m excited to hear about this company. Great read, Tanner!

Dustin

Well done, Dividend Dollars!

Kudos to you for highlighting the risks to your pick as well.

This company has almost everything I look for in a stock. The only two things I would like to see more insider ownership is 0.4% and less institutional ownership 83%.

Seems like a very safe investment that will chug along at 20% ROE year after year. I do expect to see their revenues increase due to the ever-increasing shift to higher fuel efficiency.

Well done!

Conor

Idea Competition - Cummins ($CMI) The Diesel Giant That Is Ready For The Green Revolution.

Bought 73% more CMI

This member is verified by the Commonstock team based on their contributions to the Commonstock community. 

Verified Member

This member connected a brokerage account and is sharing trades and portfolio performance with the community. 