Cummins Inc Valuation – January 2019 $CMI

Company Profile (excerpt from Reuters): Cummins Inc., incorporated on February 3, 1919, designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems. The Company’s segments include Engine, Distribution, Components and Power Systems. The Company sells its products to original equipment manufacturers (OEMs), distributors and other customers around the world. As of December 31, 2016, the Company served its customers through a network of approximately 600 distributor locations and over 7,400 dealer locations in over 190 countries and territories.

Downloadable PDF version of this valuation:

ModernGraham Valuation of CMI – January 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $24,174,063,768 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.54 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 61.15% Pass
6. Moderate PEmg Ratio PEmg < 20 16.23 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.02 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.54 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.45 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $9.28
MG Growth Estimate 1.42%
MG Value $105.22
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $134.53
MG Value based on 0% Growth $78.86
Market Implied Growth Rate 3.86%
Current Price $150.56
% of Intrinsic Value 143.09%

Cummins Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $8.48 in 2014 to an estimated $9.28 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.86% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Cummins Inc. revealed the company was trading above its Graham Number of $113.98. The company pays a dividend of $4.21 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.23, which was below the industry average of 18.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-6.61.

Cummins Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$6.61
Graham Number $113.98
PEmg 16.23
Current Ratio 1.54
PB Ratio 3.02
Current Dividend $4.21
Dividend Yield 2.80%
Number of Consecutive Years of Dividend Growth 12

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $9,863,000,000
Total Current Liabilities $6,416,000,000
Long-Term Debt $1,563,000,000
Total Assets $18,992,000,000
Intangible Assets $2,060,000,000
Total Liabilities $10,932,000,000
Shares Outstanding (Diluted Average) 161,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $13.18
Dec2017 $5.97
Dec2016 $8.23
Dec2015 $7.84
Dec2014 $9.02
Dec2013 $7.91
Dec2012 $8.67
Dec2011 $9.55
Dec2010 $5.28
Dec2009 $2.16
Dec2008 $3.84
Dec2007 $3.70
Dec2006 $3.55
Dec2005 $2.75
Dec2004 $1.85
Dec2003 $0.32
Dec2002 $0.53
Dec2001 -$0.68
Dec2000 $0.09
Dec1999 $1.03
Dec1998 -$0.14

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $9.28
Dec2017 $7.48
Dec2016 $8.27
Dec2015 $8.39
Dec2014 $8.48
Dec2013 $7.71
Dec2012 $7.04
Dec2011 $5.78
Dec2010 $3.83
Dec2009 $3.14
Dec2008 $3.47
Dec2007 $3.00
Dec2006 $2.37
Dec2005 $1.50
Dec2004 $0.72
Dec2003 $0.19
Dec2002 $0.14

Recommended Reading:

Other ModernGraham posts about the company

Cummins Inc Valuation – March 2018 $CMI
Cummins Inc Valuation – July 2016 $CMI
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2016
10 Companies Benjamin Graham Would Invest In Today – February 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2016

Other ModernGraham posts about related companies

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cummins Inc Valuation – March 2018 $CMI

Company Profile (excerpt from Reuters): Cummins Inc., incorporated on February 3, 1919, designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems. The Company’s segments include Engine, Distribution, Components and Power Systems. The Company sells its products to original equipment manufacturers (OEMs), distributors and other customers around the world. As of December 31, 2016, the Company served its customers through a network of approximately 600 distributor locations and over 7,400 dealer locations in over 190 countries and territories.

CMI Chart

CMI data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CMI – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $26,103,405,051 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.57 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 53.33% Pass
6. Moderate PEmg Ratio PEmg < 20 17.83 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.61 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.57 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.49 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $8.83
MG Growth Estimate 0.64%
MG Value $86.33
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $128.10
MG Value based on 0% Growth $75.09
Market Implied Growth Rate 4.67%
Current Price $157.55
% of Intrinsic Value 182.49%

Cummins Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $8.48 in 2014 to an estimated $8.83 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.67% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Cummins Inc. revealed the company was trading above its Graham Number of $108.08. The company pays a dividend of $4.21 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.83, which was below the industry average of 28.57, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.35.

Cummins Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$11.35
Graham Number $108.08
PEmg 17.83
Current Ratio 1.57
PB Ratio 3.61
Current Dividend $4.21
Dividend Yield 2.67%
Number of Consecutive Years of Dividend Growth 12

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $8,928,000,000
Total Current Liabilities $5,677,000,000
Long-Term Debt $1,588,000,000
Total Assets $18,075,000,000
Intangible Assets $2,055,000,000
Total Liabilities $10,816,000,000
Shares Outstanding (Diluted Average) 166,283,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $11.85
Dec2017 $5.97
Dec2016 $8.23
Dec2015 $7.84
Dec2014 $9.02
Dec2013 $7.91
Dec2012 $8.67
Dec2011 $9.55
Dec2010 $5.28
Dec2009 $2.16
Dec2008 $3.84
Dec2007 $3.70
Dec2006 $3.55
Dec2005 $2.75
Dec2004 $1.85
Dec2003 $0.32
Dec2002 $0.53
Dec2001 -$0.68
Dec2000 $0.09
Dec1999 $1.03
Dec1998 -$0.14

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.83
Dec2017 $7.48
Dec2016 $8.27
Dec2015 $8.39
Dec2014 $8.48
Dec2013 $7.71
Dec2012 $7.04
Dec2011 $5.78
Dec2010 $3.83
Dec2009 $3.14
Dec2008 $3.47
Dec2007 $3.00
Dec2006 $2.37
Dec2005 $1.50
Dec2004 $0.72
Dec2003 $0.19
Dec2002 $0.14

Recommended Reading:

Other ModernGraham posts about the company

Cummins Inc Valuation – July 2016 $CMI
10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2016
10 Companies Benjamin Graham Would Invest In Today – February 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2016
10 Low PE Stocks for the Defensive Investor – January 2016

Other ModernGraham posts about related companies

Flowserve Corp Valuation – February 2018 $FLS
Corning Inc Valuation – February 2018 $GLW
Home Depot Inc Valuation – February 2018 $HD
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Eagle Materials Inc Valuation – Initial Coverage $EXP
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Lowe’s Companies Inc Valuation – March 2017 $LOW
Cavco Industries Inc Valuation – Initial Coverage $CVCO
LGI Homes Inc Valuation – Initial Coverage $LGIH
Fortune Brands Home & Security Inc Valuation – Initial Coverage $FBHS

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cummins Inc Valuation – July 2016 $CMI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cummins Inc (CMI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cummins Inc. is a manufacturer of diesel engines. The Company operates through four segments: Engine, Distribution, Components and Power Generation. Its Engine segment manufactures and markets a range of diesel and natural gas-powered engines under the Cummins brand name, as well as certain customer brand names for the heavy-and medium-duty truck, bus, recreational vehicle (RV), light-duty automotive, agricultural and governmental equipment markets. Its Distribution segment consists of various businesses, which service and/or distribute a range of its products and services, such as parts and filtration, power generation, engines and service. Its Components segment supplies products, including after treatment systems, turbochargers, filtration products and fuel systems for commercial diesel applications. The Power Generation segment provides power generation systems, components and services for a customer base, including power solutions and mobile power solutions.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CMI – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $18,386,228,650 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.91 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 149.07% Pass
6. Moderate PEmg Ratio PEmg < 20 13.89 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.75 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.91 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.45 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CMI value chart July 2016

EPSmg $7.96
MG Growth Estimate 1.97%
MG Value $99.03
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $115.43
MG Value based on 0% Growth $67.67
Market Implied Growth Rate 2.70%
Current Price $110.61
% of Intrinsic Value 111.70%

Cummins Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $7.04 in 2012 to an estimated $7.96 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.7% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Cummins Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

CMI charts July 2016

Net Current Asset Value (NCAV) -$2.55
Graham Number $80.75
PEmg 13.89
Current Ratio 1.91
PB Ratio 2.75
Current Dividend $3.71
Dividend Yield 3.35%
Number of Consecutive Years of Dividend Growth 11

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $7,468,000,000
Total Current Liabilities $3,917,000,000
Long-Term Debt $1,614,000,000
Total Assets $14,827,000,000
Intangible Assets $829,000,000
Total Liabilities $7,907,000,000
Shares Outstanding (Diluted Average) 172,000,000

Earnings Per Share History

Next Fiscal Year Estimate $7.30
Dec2015 $7.84
Dec2014 $9.02
Dec2013 $7.91
Dec2012 $8.67
Dec2011 $9.55
Dec2010 $5.28
Dec2009 $2.16
Dec2008 $3.84
Dec2007 $3.70
Dec2006 $3.55
Dec2005 $2.75
Dec2004 $1.85
Dec2003 $0.32
Dec2002 $0.53
Dec2001 -$0.67
Dec2000 $0.05
Dec1999 $1.03
Dec1998 -$0.14
Dec1997 $1.37
Dec1996 $1.00

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $7.96
Dec2015 $8.39
Dec2014 $8.48
Dec2013 $7.71
Dec2012 $7.04
Dec2011 $5.78
Dec2010 $3.83
Dec2009 $3.14
Dec2008 $3.47
Dec2007 $3.00
Dec2006 $2.37
Dec2005 $1.50
Dec2004 $0.72
Dec2003 $0.19
Dec2002 $0.14
Dec2001 $0.07
Dec2000 $0.51

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Dividend Stock Investor – June 2016
10 Companies Benjamin Graham Would Invest In Today – February 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2016
10 Low PE Stocks for the Defensive Investor – January 2016
13 Best Stocks For Value Investors This Week – 12/12/15

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cummins Inc Valuation – December 2015 Update $CMI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cummins Inc (CMI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cummins Inc. is a global diesel engine manufacturer. The Company designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, after treatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems. It has four operating segments: Engine, Distribution, Components and Power Generation. The Company sells its products to original equipment manufacturers (OEMs), distributors and other customers. It serves its customers through a network of around 600 Company-owned and independent distributor locations and around 7,200 dealer locations in more than 190 countries. In addition, engines and engine components are manufactured by the Company’s joint ventures or independent licensees at its manufacturing plants in the United States, China, India, South Korea, Mexico and Sweden. Its subsidiaries include Cummins India Ltd. and Wuxi Cummins Turbo Technologies Co. Ltd.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of CMI – December 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $16,008,841,450 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.23 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 131.86% Pass
6. Moderate PEmg Ratio PEmg < 20 10.05 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.00 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.23 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.33 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CMI value Chart December 2015

EPSmg $8.71
MG Growth Estimate 7.60%
MG Value $206.36
Opinion Undervalued
MG Value based on 3% Growth $126.30
MG Value based on 0% Growth $74.04
Market Implied Growth Rate 0.77%
Current Price $87.50
% of Intrinsic Value 42.40%

Cummins Inc qualifies for both the Enterprising Investor and the more conservative Defensive Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $5.78 in 2011 to an estimated $8.71 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.77% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cummins Inc (CMI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CMI Charts December 2015

Net Current Asset Value (NCAV) $4.59
Graham Number $92.89
PEmg 10.05
Current Ratio 2.23
PB Ratio 2.00
Dividend Yield 3.79%
Number of Consecutive Years of Dividend Growth 10

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Total Current Assets $8,862,000,000
Total Current Liabilities $3,968,000,000
Long-Term Debt $1,595,000,000
Total Assets $15,797,000,000
Intangible Assets $818,000,000
Total Liabilities $8,048,000,000
Shares Outstanding (Diluted Average) 177,400,000

Earnings Per Share History

Next Fiscal Year Estimate $8.79
Dec14 $9.02
Dec13 $7.91
Dec12 $8.67
Dec11 $9.55
Dec10 $5.28
Dec09 $2.16
Dec08 $3.84
Dec07 $3.70
Dec06 $3.55
Dec05 $2.75
Dec04 $1.85
Dec03 $0.32
Dec02 $0.53
Dec01 -$0.68
Dec00 $0.09
Dec99 $1.03
Dec98 -$0.14
Dec97 $1.37
Dec96 $1.00
Dec95 $1.38

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $8.71
Dec14 $8.48
Dec13 $7.71
Dec12 $7.04
Dec11 $5.78
Dec10 $3.83
Dec09 $3.14
Dec08 $3.47
Dec07 $3.00
Dec06 $2.37
Dec05 $1.50
Dec04 $0.72
Dec03 $0.19
Dec02 $0.14
Dec01 $0.08
Dec00 $0.53
Dec99 $0.81

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Dividend Stock Investor – December 2015
10 Low PE Stocks for the Defensive Investor – December 2015
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – November 2015
10 Undervalued Companies for the Defensive Dividend Stock Investor – November 2015
10 Low PE Stocks for the Defensive Investor – November 2015

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Cummins Inc. Analysis – August 2015 Update $CMI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Cummins Inc. (CMI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Cummins Inc. is a global diesel engine manufacturer. The Company designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, after treatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems. It has four operating segments: Engine, Distribution, Components and Power Generation. The Company sells its products to original equipment manufacturers (OEMs), distributors and other customers. It serves its customers through a network of around 600 Company-owned and independent distributor locations and around 7,200 dealer locations in more than 190 countries. In addition, engines and engine components are manufactured by the Company’s joint ventures or independent licensees at its manufacturing plants in the United States, China, India, South Korea, Mexico and Sweden. Its subsidiaries include Cummins India Ltd. and Wuxi Cummins Turbo Technologies Co. Ltd.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CMI – August 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Pass
6. Moderate PEmg Ratio PEmg < 20 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg 8.96
MG Growth Estimate 8.25%
MG Value $224.14
Opinion Undervalued
MG Value based on 3% Growth $129.97
MG Value based on 0% Growth $76.19
Market Implied Growth Rate 2.20%
Current Price $115.60
% of Intrinsic Value 51.57%

Cummins Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, which is a very rare accomplishment indicative of the strong fundamentals. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $5.78 in 2011 to an estimated $8.96 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.2% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Cummins Inc. (CMI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CMI charts August 2015

Net Current Asset Value (NCAV) $5.45
PEmg 12.89
Current Ratio 2.22
PB Ratio 2.64
Dividend Yield 2.70%
Number of Consecutive Years of Dividend Growth 10

 

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Most Recent Balance Sheet Figures

Total Current Assets $9,003,000,000
Total Current Liabilities $4,053,000,000
Long-Term Debt $1,576,000,000
Total Assets $15,878,000,000
Intangible Assets $812,000,000
Total Liabilities $8,024,000,000
Shares Outstanding (Diluted Average) 179,600,000

Earnings Per Share History

Next Fiscal Year Estimate $9.55
Dec14 $9.02
Dec13 $7.91
Dec12 $8.67
Dec11 $9.55
Dec10 $5.28
Dec09 $2.16
Dec08 $3.84
Dec07 $3.70
Dec06 $3.55
Dec05 $2.75
Dec04 $1.85
Dec03 $0.32
Dec02 $0.53
Dec01 -$0.68
Dec00 $0.09
Dec99 $1.03
Dec98 -$0.14
Dec97 $1.37
Dec96 $1.00
Dec95 $1.38

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $8.96
Dec14 $8.48
Dec13 $7.71
Dec12 $7.04
Dec11 $5.78
Dec10 $3.83
Dec09 $3.14
Dec08 $3.47
Dec07 $3.00
Dec06 $2.37
Dec05 $1.50
Dec04 $0.72
Dec03 $0.19
Dec02 $0.14
Dec01 $0.08
Dec00 $0.53
Dec99 $0.81

Recommended Reading:

Other ModernGraham posts about the company

10 Undervalued Companies for the Defensive Dividend Stock Investor – August 2015
The Best Companies of the Machinery Industry – August 2015
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – August 2015 $BEN $RL $FOSL $PWR $CMI
5 Undervalued Companies for Defensive Investors With High Dividend Yields – July 2015
5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – July 2015

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Snap-on Inc. Analysis – August 2015 Update $SNA
Joy Global Inc. Analysis – August 2015 Update $JOY
Rockwell Automation Analysis – July 2015 Update $ROK
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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.

5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – August 2015 $BEN $RL $FOSL $PWR $CMI

5def-und-lows_edited-1

There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I’ve selected the five undervalued companies reviewed by ModernGraham trading closest to their 52 week low. Each of these companies has been determined to be suitable for the Defensive Investor according to the ModernGraham approach. Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk.

Be sure to check out the history of this screen to see which companies have been selected in the past.

Here are the five undervalued companies for the Defensive Investor near 52 week lows:

Franklin Resources Inc. (BEN)

Franklin_Resources_LogoFranklin Resources performs very well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. In fact, the company passes all of the requirements of both investor types, which is a rare accomplishment indicative of the company’s strong financial position. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $2.23 in 2011 to an estimated $3.49 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 3.03% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged over 11% annually, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time. (See the full valuation)

Ralph Lauren Corporation (RL)

Ralph_Lauren_Corporation

Ralph Lauren performs well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. The Defensive Investor is only concerned with the poor PB ratio, while the Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $4.76 in 2011 to an estimated $7.81 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 4.33% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 9.6% annually, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time. (See the full valuation)

Fossil Group Inc. (FOSL)

220px-Fossil_logo.svgFossil Group performs well in the ModernGraham model and is suitable for both Defensive and Enterprising Investors. Both investor types are only initially concerned by the lack of dividend payments. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $1.68 in 2011 to an estimated $6.01 for 2015. This is a strong level of growth and is well above the market’s implied estimate of only 1.68% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged nearly 16% annually, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (See the full valuation)

Quanta Services Inc. (PWR)

220px-QScolorjpgQuanta Services passes the initial requirements of both the Defensive Investor and the Enterprising Investor. Both investor types are only initially concerned by the lack of dividends. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $0.74 in 2011 to an estimated $1.57 for 2015. This is a fairly strong level of demonstrated growth and outpaces the market’s implied estimate for annual earnings growth of only 4.64% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged around 22.7% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that Quanta Services is significantly undervalued at the present time.  (See the full valuation)

Cummins Inc. (CMI)

Logo_cumminsCummins performs well in the ModernGraham model and is suitable for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio while the Enterprising Investor has no initial concerns. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $5.78 in 2011 to an estimated $8.88 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 3.74% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged over 10.7% annually, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.  (See the full valuation)

What do you think?  Are these companies a good value for Defensive Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing those holdings within the next 72 hours.

Cummins Stock Analysis – Quarterly Update May 2015 $CMI

Logo_cumminsCummins Inc. (CMI) has shown very strong earnings growth over the last several years, which will immediately intrigue many investors. For example, Winning Strategies recently wrote that the company’s efficient management strategies are guiding the company to strong earnings results while Dan Strack similarly posited that the market has overreacted to weaker-than-expected international demands, leading Cummins to be signficantly undervalued. These are both great qualitative factors that should be considered when making investment decisions.

However, Benjamin Graham, the father of value investing, taught that investors must take emotion out of the equation, as the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here’s a quarterly update of Cummins stock analysis reflecting how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

CMI Chart

CMI data by YCharts

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Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – Has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $141.88
MG Value $218.22
MG Opinion Undervalued
Value Based on 3% Growth $128.76
Value Based on 0% Growth $75.48
Market Implied Growth Rate 3.74%
Net Current Asset Value (NCAV) $5.36
PEmg 15.98
Current Ratio 2.22
PB Ratio 3.33

Balance Sheet – March 2015

Current Assets $9,000,000,000
Current Liabilities $4,057,000,000
Total Debt $1,602,000,000
Total Assets $15,736,000,000
Intangible Assets $810,000,000
Total Liabilities $8,030,000,000
Outstanding Shares 181,000,000

Earnings Per Share

2015 (estimate) $9.30
2014 $9.02
2013 $7.91
2012 $8.67
2011 $9.55
2010 $5.28
2009 $2.16
2008 $3.84
2007 $3.70
2006 $3.55
2005 $2.75

Earnings Per Share – ModernGraham

2015 (estimate) $8.88
2014 $8.48
2013 $7.71
2012 $7.04
2011 $5.78
2010 $3.83

Dividend History

CMI Dividend Chart

CMI Dividend data by YCharts

Conclusion

Cummins performs well in the ModernGraham model and is suitable for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PB ratio while the Enterprising Investor has no initial concerns. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $5.78 in 2011 to an estimated $8.88 for 2015. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 3.74% annual earnings growth over the next 7-10 years.

Here, actual growth in EPSmg over the last several years has averaged over 10.7% annually, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.

Value Investors should take this information regarding the company’s valuation and proceed with further research into whether the company would be suitable for individual portfolios, as it has passed a ModernGraham review.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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Cummins Inc. Quarterly Valuation – February 2015 $CMI

Logo_cummins

Cummins Inc. passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue the Defensive Investor has with the company is the high PB ratio, while the Enterprising Investor has no initial concerns. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, Cummins Inc. has grown its EPSmg (normalized earnings) from $3.83 in 2010 to $8.48 for 2014. This is a very strong level of demonstrated growth, which is well above the market’s implied estimate for earnings growth of only 3.81% over the next 7-10 years. In fact, the historical growth is around 24.2% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.

Be sure to check out previous ModernGraham valuations of Cummins Inc. (CMI) for greater perspective!

Read the full valuation on Seeking Alpha!

CMI Chart

CMI data by YCharts

Disclaimer:  The author did not hold a position in Cummins Inc. (CMI) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Cummins Inc. Quarterly Valuation – November 2014 $CMI

Logo_cumminsCummins Inc. definitely passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The Defensive Investor’s only concern is the high PB ratio, while the Enterprising Investor has no initial concerns. This indicates the company presents a low risk level as its fundamentals are very strong. All value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $3.83 in 2010 to an estimated $8.39 for 2014. This is a very strong level of demonstrated growth which is well above the market’s implied estimate for earnings growth of 4.43% over the next 7-10 years. In fact, the historical growth is around 23.75% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, and therefore returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time.

Read the full valuation on Seeking Alpha!

CMI Chart

CMI data by YCharts

Jacobs Engineering Group Inc Valuation – March 2019 #JEC

Company Profile (excerpt from Reuters): Jacobs Engineering Group Inc., incorporated on January 8, 1987, is a technical professional services company. The Company provides a range of technical, professional and construction services to industrial, commercial and governmental clients. The Company’s services include Project Services; Process, Scientific, and Systems Consulting Services; Construction Services, and Operations and Maintenance Services. The Company operates four lines of business (LOBs): Petroleum and Chemicals; Buildings and Infrastructure; Aerospace and Technology, and Industrial. It caters its services to various sectors, such as oil and gas exploration, production and refining; chemicals and polymers; programs for various national governments, including aerospace, defense, and environmental programs; buildings (including specialized buildings for clients operating in the fields of healthcare, education, and high technology; governmental complexes; other specialized civic and mission critical buildings, installations, and laboratories; and retail and commercial buildings); infrastructure and telecommunications; mining and minerals; pharmaceuticals and biotechnology; power; pulp and paper; technology and manufacturing, and food and consumer products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of JEC – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,214,039,442 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.58 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 2.27% Fail
6. Moderate PEmg Ratio PEmg < 20 28.76 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.80 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.58 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.48 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.55
MG Growth Estimate -0.71%
MG Value $18.04
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $36.93
MG Value based on 0% Growth $21.65
Market Implied Growth Rate 10.13%
Current Price $73.24
% of Intrinsic Value 405.88%

Jacobs Engineering Group Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.67 in 2015 to an estimated $2.55 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.13% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Jacobs Engineering Group Inc revealed the company was trading above its Graham Number of $61.47. The company pays a dividend of $0.75 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 28.76, which was above the industry average of 20.99. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-15.36.

Jacobs Engineering Group Inc scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$15.36
Graham Number $61.47
PEmg 28.76
Current Ratio 1.58
PB Ratio 1.80
Current Dividend $0.75
Dividend Yield 1.02%
Number of Consecutive Years of Dividend Growth 2

Useful Links:

ModernGraham tagged articles Morningstar
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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $4,898,862,000
Total Current Liabilities $3,094,724,000
Long-Term Debt $2,668,993,000
Total Assets $12,945,259,000
Intangible Assets $5,323,116,000
Total Liabilities $7,104,225,000
Shares Outstanding (Diluted Average) 143,578,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.08
Sep2018 $1.17
Sep2017 $2.42
Sep2016 $1.73
Sep2015 $2.40
Sep2014 $2.48
Sep2013 $3.23
Sep2012 $2.94
Sep2011 $2.60
Sep2010 $1.96
Sep2009 $3.21
Sep2008 $3.38
Sep2007 $2.35
Sep2006 $1.64
Sep2005 $1.12
Sep2004 $1.01
Sep2003 $1.00
Sep2002 $0.99
Sep2001 $0.81
Sep2000 $0.48
Sep1999 $0.62

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.55
Sep2018 $1.87
Sep2017 $2.29
Sep2016 $2.34
Sep2015 $2.67
Sep2014 $2.75
Sep2013 $2.86
Sep2012 $2.72
Sep2011 $2.64
Sep2010 $2.61
Sep2009 $2.73
Sep2008 $2.30
Sep2007 $1.65
Sep2006 $1.25
Sep2005 $1.03
Sep2004 $0.94
Sep2003 $0.86

Recommended Reading:

Other ModernGraham posts about the company

Jacobs Engineering Group Inc Valuation – May 2018 $JEC
Jacobs Engineering Group Inc Valuation – January 2017 $JEC
Jacobs Engineering Group Inc Valuation – August 2016 $JEC
Jacobs Engineering Group Inc Valuation – January 2016 Update $JEC
Jacobs Engineering Group Analysis – October 2015 Update $JEC

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Vulcan Materials Co Valuation – February 2019 $VMC
PulteGroup Inc Valuation – January 2019 $PHM
Sherwin-Williams Co Valuation – January 2019 $SHW
Johnson Controls International PC Valuation – January 2019 $JCI
Cummins Inc Valuation – January 2019 $CMI

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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