Tags: Cummins | value | radar | CMI

Cummins Should Be On Value Investor Radar

Tuesday, 10 Jan 2012 07:35 AM

By Tim Plaehn

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Engine manufacturer Cummins (CMI) should be on the radar of both value and growth investors. At the end of 2011, the company share value did not provide an accurate reflection of the company's recent record results.

Cummins is best known as a manufacturer of diesel engines. The company provides engines for both on- and off-road uses. Engine sales account for about 50 percent of revenue. The other Cummins business segments are engine component sales at 18 percent of sales; power generation sales at 16 percent; and 14 percent from parts distribution sales.

Cummins is a global company with manufacturing facilities worldwide, and the company generates more than 60 percent of sales internationally.

For the first three quarters of 2011, Cummins reported total sales of $13.1 billion, up 40 percent from $9.1 billion in 2010. Net income for the period was $6.69 per share, up from $3.43.

For the full year, the consensus earnings estimate is $8.69 per share, compared to earnings of $5.17 in 2010. The 2012 Wall Street earnings estimate is $9.79.

Long-term growth

The Cummins management team has published a 2015 revenue goal of $30 billion, compared to projected sales in 2011 of $17.8 billion. Company goals also include increasing the EBIT of sales amount to 18 percent from the current 14.5 percent.

Growth is projected to come from increasing heavy truck sales in North American and Brazil, plus an emerging market trend of increased infrastructure development, requiring Cummins products.

Cummins has increased the quarterly dividend at an aggressive pace over the last few years, from a split-adjusted quarterly payout of 9 cents per share at the start of 2007 to the current 40 cents quarterly distribution. Two 2-for-1 stock splits have been declared since 2006.

Recently, the analysts at Standpoint Research initiated coverage on Cummins with a buy rating and a target price 20 percent above the current share level.

The company next reports on Feb. 1.

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