Cummins Inc. (CMI) Trading at a Value Price

Defense Manufacturing

The big technology companies may get all the headline attention, but big breakthroughs in technology and new paradigms happen in every industry.

How new technologies are adopted and implemented is just as critical as their development. Industries like manufacturing are usually some of the first to begin using innovative technology solutions. And this willingness to adopt early tech can boost stock returns for investors who know what to look for.

For one manufacturing company, new technologies and booming global demand make for a deep value pick-up that could churn out outsized profits for investors.

A Global Brand Wrapped Up in a Value Stock

Cummins Inc. (CMI) is a $32.9 billion specialty industrial machinery manufacturer that designs and produces engines, filtration, and power generation products. The company has operations in over 190 countries through its network of more than 600 company-owned dealers and independent contractors.

The company missed third-quarter earnings reporting $3.69 per share versus analysts’ expectations of $3.91 per share. Sales numbers came in higher than expected at $5.97 billion compared to $5.87 billion. However, management still revised its total 2021 revenue growth expectations slightly lower from $20-$24 per share to just $20 per share. The semiconductor chip shortage impacted the business but isn’t a systemic problem over the long run.

One of the most underrated selling points for this stock moving forward is its commitment to developing new “green energy” propulsion systems. The company’s focus on low-carbon emissions, hydrogen fuel cells, and battery technology help it steer away from traditional diesel products and give it a leg up over the competition.

A Peek at the Underlying Fundamentals

The stock trades fairly cheaply at 15 times earnings compared to the engines machinery industry average of 22 times earnings.

The long-term projected EPS growth rate of 14.8% gives it a PEG ratio of close to 1 – a good sign that the stock is currently trading at undervalued prices.

One of the stock’s strongest incentives for investors is its beefy 2.5% dividend yield. The relatively low dividend payout ratio of 36% ensures plenty of room for further increases to easily keep pace with inflation.

Analyzing the Technical Layout

The chart for Cummins shows a gradual decline to a bottom through the end of 2021. But a resurgent upward path seems to be developing as we kick off the new year, with the stock jumping around 8% so far.

While the 20-day SMA is trending below the 50-day and 200-day SMAs, the gap is closing quickly. Any crossover event will likely trigger stronger bullish momentum. The steep climb means that the stock could be overbought at the moment, with an RSI reading of around 63.

Investors may want to establish a position in the stock through several purchases over the next few weeks rather than buying all at once.

The Bottom Line

Based on Cummins’ full-year EPS estimates, this stock should be fairly valued at around $275 per share – a gain of roughly 19% from its current trading price range.

Value investors looking for an out-of-the-box pick that could surprise on the upside won’t want to miss out on the opportunity to grab this stock while it is still cheap.

The above analysis of Cummins Inc. (CMI) was provided by financial writer Daniel Cross.

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