Cummins Inc (CMI) is a company most people know because of their truck engines. Cummins designs, manufactures, distributes and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide. They have their finger in all types of industries that rely on engines including automotive, marine, rail, agricultural and mining. Cummins has expanded from only fossil fuel engines and now offers power systems including electrical, battery, fuel cell and hydrogen production technologies.
Cummins recently reported their 4th quarter earnings. They earned $4.52 per share, which was up from $2.85 a year ago. They also had revenues of $7.8 billion, which was up 32.8% from last year’s numbers. For 2023, Cummins expects to grow its earnings 12-17% year over year, with a 3–5-year growth rate of 9.5%. This is also the 13th year in a row Cummins has increased their dividend. They pay an annual dividend of $6.28 per share, giving you a yield of 2.54% at the time this was written. Cummins pays out about 44% of its earnings as dividends.
The sentiment for Cummins stock is all over the place. There is concern that the rate of growth is slowing and the margins are becoming smaller on what they sell. CMI’s profit margin this past year was 7.7%, down from 8.9% last year due to higher expenses. Deutsche Bank cut their price target to $231 from $235, while Credit Suisse raised their price target to $291 from $287. Cummins currently trades at about $246 per share. Market Edge rates Cummins “Avoid” while Schwab rates them a “Hold” and Argus rates them a “Buy”.
There is also worry that electric engines will replace all internal combustion engines soon. I don’t believe this is the case, and even so, Cummins is developing low carbon emission engines (battery and hydrogen) to compete in this arena. They already power hydrogen fuel cell trains in Austria and are using hydrogen technology to enable renewal energy for public utilities in Washington state.
I think Cummins is a Hold right now. If you own it, don’t sell it, but you may find a better entry point to buy in to give you a greater margin of safety. The share price has been bouncing around between about $235 and $255 since last November. If this is a stock you want to own, wait until a bounce down to pick up some shares. The trend for Cummins appears to be in a longer-term uptrend even though it is consolidating some right now.
As always do your own research and due diligence before buying any investment. Full disclosure, I do own shares of Cummins Inc. Sources include Schwab, Seeking Alpha, and Cummins.com.
(Intentional Investing is a weekly column written by Kyle Smith from Floyd County, TX, based upon his investment knowledge and does not represent the views or opinions of the Floyd County Record)
