Cummins (CMI) has had a nice ride since the economic crisis, up about 500% from its 2008 and 2009 lows, a not too shabby return for shareholders. The company also pays a decent dividend with it yielding now 1.3%. However, it seems like the stock is right where it's supposed to be with all of the valuation metrics in agreement that the stock is fairly valued. Notably, the results of the company should continue to get stronger as the economy continues to hum along. Cummins' engines and related technologies should continue to be in demand as the economy is in an expansionary period so the stock should continue to hum a long albeit at a slower pace. Below is an in depth look at the valuation metrics.
Valuation: Cummins' trailing 5 year valuation metrics suggest that the stock is fairly valued as there is a mixed message about the valuation metrics compared to their 5 year averages. Cummins' current P/B ratio is 4.2 and it has averaged 3 over the past 5 years with a high of 4.4 and low of 1.5. Cummins' current P/S ratio is 1.3 and it has averaged 1 over the past 5 years with a high of 1.6 and low of 0.4. Cummins' current P/E ratio is 12.1 and it has averaged 16.6 over the past 5 years with a high of 44.4 and low of 7.
Price Target: The consensus price target for the analysts who follow Cummins is $133. That is upside of 15% from today's stock price of $115.62 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: Cummins is currently trading at about $116 a share with analysts expecting EPS of $11.72 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 9.9. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Caterpillar (CAT) is currently trading at about $106 a share with analysts expecting EPS of $11.32 next year, an earnings increase of 19% y/y, for a forward P/E ratio of 9.4. Deere & Co (DE) is currently trading at about $81 a share with analysts expecting EPS of $8.52 next year, an earnings increase of 6% y/y, for a forward P/E ratio of 9.5. ABB (ABB) is currently trading at about $20 a share with analysts expecting EPS of $1.81 next year, an earnings increase of 11% y/y, for a forward P/E ratio of 11. The mean forward P/E of Cummins' competitors is 10 which suggests that Cummins is fairly valued relative to its publicly traded competitors.
Earnings Estimates: Cummins has beat EPS estimates every time in the past 4 quarters. The company's EPS figures have come in between 10 cents and 40 cents from consensus estimates or about 4.4% to 21.5% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Price Action: Cummins is up 8.1% over the past year, outperforming the S&P 500, which is up 7.2%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $119.21 and above its 200 day moving average, which sits at $100.54.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
