Cummins Inc. (NYSE: CMI) Stock Research Report

✨ Executive Summary

Cummins Inc. (CMI), a global leader in power solutions, delivered record-breaking performance in FY2024, with full-year revenue reaching $34.1B and adjusted EBITDA hitting $5.4B (15.7% margin). Despite softness in North America heavy-duty trucks, strength in power generation and aftermarket services offset market headwinds. The company is executing on its "Destination Zero" strategy while strategically restructuring its Accelera business to prioritize returns. With a low P/E of 11.1x, strong free cash flow ($882M in Q4), and growing demand for power systems, Cummins offers a compelling value proposition in the industrials sector.

Outlook Summary: Short-term uncertainty (2025) driven by mixed truck markets; long-term growth supported by electrification, power gen, and hydrogen investments.

🌟 Investment Thesis

Why Cummins is a Compelling Investment:

🔧 Industrial Leadership: Dominates in diesel and natural gas engines with extensive OEM relationships and high barriers to entry.
📊 Power Systems Boom: Riding surging demand from data centers and global backup power needs; Power Systems EBITDA margin hit 18.4% in FY2024.
🚀 Electrification Optionality: Accelera business provides long-term EV exposure (e.g., hydrogen, batteries, fuel cells).
⚖️ Value Stock Attributes: Trades at ~11.1x TTM P/E and offers consistent dividend yield (~2.5%).
📈 Strong Financials: Net income of $3.9B in FY2024, operating cash flow of $1.4B in Q4, and improving margins across segments.
🛋 Balance Sheet Discipline: Piotroski Score of 8; Altman Z-score of 3.98 indicates solid financial stability.
📃 Operational Excellence: Cost reductions, margin expansion, and streamlined global structure.
✅ Aftermarket Resilience: Diversified recurring revenue through aftermarket services; flat to 5% growth expected in 2025.

⏳ Short-Term Outlook (1–2 Years)

📊 Growth Catalysts

Data Center Expansion: Ongoing demand for large generators (QSK78, QSK95) to support hyperscale facilities.
New Engine Platforms: HELM engine platform offers fuel flexibility (diesel, natural gas, hydrogen).
International Strength: China and India showing recovery signs in truck and genset markets.

⚠️ Risks to Watch

Declining NA Class 8 truck build rates in 1H 2025.
Slower-than-expected EV adoption may drag Accelera segment.
Supply chain constraints and geopolitical uncertainties.

✉️ Verdict: Hold / Speculative Buy

Short-term volatility tied to NA truck demand; power gen and aftermarket act as stabilizers.

🌏 Long-Term Outlook (3+ Years)

♻️ Structural Growth Drivers

Power Security: Rising global power generation needs amid electrification.
Destination Zero Strategy: Multi-decade roadmap toward zero emissions.
HELM Platform: Modular architecture reduces capex and accelerates time-to-market.
Accelera JV (Amplify): 21 GWh battery cell factory underway in Mississippi, targeting 2027 production.

⚠️ Long-Term Hurdles

Capital intensity of scaling Accelera.
Competitive pressures in hydrogen tech from new entrants.
Policy risk in energy transition incentives.

🔝 Final Verdict: Strong Buy (Long-Term)

Industrial moat, power gen momentum, and long-term electrification optionality support multi-year upside.

📈 Key Financial Highlights

Metric	Q4 2024	Q3 2024	Q4 2023	YoY Change
Revenue	$8.4B	$8.4B	$8.4B	Flat
Net Income	$418M	$809M	$(1.39)B	+130%
Operating Cash Flow	$1.42B	$640M	$1.46B	Flat
Free Cash Flow	$882M	$381M	$940M	–8%
EPS (Diluted)	$3.02	$5.87	$(9.55)	+N/A
Cash End of Period	$1.67B	$1.73B	$2.18B	–23%

📅 Forward Financial Estimates

Year	Revenue	EBITDA	Net Income	EPS
2025E	$33.8B	$5.5B	$3.6B	$26.40
2026E	$34.5B	$5.7B	$3.7B	$27.30
2027E	$36.0B	$5.9B	$3.8B	$28.20

🌐 Peer Valuation Analysis

Company	P/E (TTM)	EV/EBITDA	P/FCF	Debt/Equity
Cummins (CMI)	11.1x	~8.0x	12.3x	0.40
CAT	17.4x	12.1x	19.2x	2.12
DE	12.3x	9.8x	15.1x	3.54
PCAR	15.2x	10.4x	14.6x	0.46

Valuation Take: Cummins trades at a notable discount to peers on a P/E and P/FCF basis.

🔫 Insider & Institutional Sentiment

Insider Activity: No significant recent insider sales or buys.
Institutional Ownership: Stable ownership; large holders include Vanguard, BlackRock.

🧰 Valuation & Intrinsic Value

📊 DCF Valuation (Base Case)

Assumptions:
- Discount Rate: 9%
- Terminal Growth: 2%
- Avg. FCF: ~$3.3B
Intrinsic Value (DCF): ~$370

� Earnings-Based Valuation

P/E Target Range: 13x–15x on 2025E EPS of $26.40
Valuation Range: $343–396

Combined Valuation Table:

Method	Implied Price
DCF Model	$370
P/E @ 13x	$343
P/E @ 15x	$396

🌿 Dividend Snapshot

Metric	Value
Dividend Yield	~2.5%
Payout Ratio	~28%
Dividend Growth	12 years
5-Yr CAGR	~7.5%

Dividend-friendly stock with long history of increases.

🌱 ESG & Other Metrics

Metric	Status
ESG Rating (Sustainalytics)	Medium Risk
Shariah Compliance	Partial
Climate Strategy	Active (Accelera, HELM engines)
Governance Quality	Strong

✅ Final Investment Summary & Key Takeaways

Short-Term: Mixed signals; Hold or Buy on pullbacks due to temporary truck market softness.
Long-Term: Strong Buy driven by power gen, tech diversification (Accelera), and operational leverage.
Valuation: Undervalued relative to peers and intrinsic DCF.

⚠️ Disclaimer

This report is for informational purposes only and does not constitute investment advice. Investors should conduct their own due diligence and consult with a licensed financial advisor before making any investment decisions.