I have been eyeing this company for awhile. I put in my price at $189.11 and just waited. It got filled today. I have been watching it since I had owned Meditor (MTOR)...Cummins is buying Meditor. I then did a covered call for the June 23 $200...I got $20.40 for the option. It also has a 3% dividend...Yeah, very boring. They are working to convert to electric over the years. They have the infrastructure to go diesel or move to electric (service centers and building the product). Nothing special about this move, but this is what I thrive on for income and stability. Just me...
Top manufacturer of industrial Diesel Engines. Has been in a much older bear trend. Europe getting a slap of reality. China getting stimulative. Very contrarian. I like it. Good luck.
This sort of summed up my thoughts... The trucking industry has been worried about skyrocketing diesel prices throughout much of 2022. They have warned about possible supply chain disruptions and have indicated they are shipping loads at losses if they can pass along fuel surcharges. One company that may be affected is Cummins Inc. (NYSE:CMI). The company manufactures and distributes diesel and natural gas engines, electric and hybrid powertrains and related components worldwide. It operates through five segments: Engine, Distribution, Components, Power Systems and New Power. The company primarily offers diesel and natural gas-powered engines under the Cummins brand for the heavy and medium-duty truck, bus, recreational vehicle, construction and other mobile markets. Additional products include automated transmissions, generators, controls, paralleling systems, transfer switches and A/C generator and alternator products. The company services its products through a network of approximately 500 wholly-owned, joint venture and independent distributor locations and more than 10,000 Cummins certified dealer locations in over 190 countries. Founded in 1919, Cummins is headquartered in Columbus, Indiana and currently has a $27 billion market capitalization. Meritor acquisition In February, the company announced it is acquiring Meritor Inc. (NYSE:MTOR) for $36.50 per share, which is an enterprise value of approximately $3.7 billion when including assumed debt and net of acquired cash. The deal is valued at 5.9 times fiscal 2022 enterprise value/Ebitda (7.4 time excluding synergies), according to Cummins. Meritor is a global leader of drivetrain, mobility, braking, aftermarket and electric powertrain solutions for the commercial vehicle and industrial markets. This transaction is expected to strengthen Cummins industry-leading range of powertrain components and accelerate development of electrified power solutions. Financial review Cummins had a good recovery year in 2021 as revenue increased 21% to $24 billion with North American revenue up 17% and international revenue growing 27%. Ebitda for the year was $3.5 billion (14.7% of sales) compared to $3.1 billion (15.7% of sales) in 2020. The company generated net income for the full year of $2.1 billion ($14.61 per share), compared to net income of $1.8 billion ($12.01 per share) in 2020. At year-end, the company had $3.2 billion in cash and equivalents and $4.1 billion in total outstanding debt. The company generated $1.5 billion in free cash flow for the year and was able to repurchase $1.4 billion in common stock. Demands for the company products remained strong in the first quarter, with revenue increasing 5%. North American revenue increased 12%, while international revenue decreased 3%, which was largely driven by a slowdown in China. However, the company was not immune to higher fuel costs, supply chain disruptions and other inflationary issues. Ebitda decreased 23% to $755 million compared to $980 million in prior-year period. The companys balance sheet position did not materially change as it generated free cash flow in the first quarter. Valuation The company provided updated 2022 guidance in its first-quarter release, which calls for revenue to increase 8% due to stronger demand in North America and other markets. The full-year 2022 Ebitda margin is expected to be approximately 15.5% and the company plans to return approximately 50% of operating cash flow to shareholders in the form of dividends and share repurchases. Consensus analyst earnings per share estimates for 2022 are $17.59 and $20.46 for 2023. Next year is likely a more normalized year for the company as inflation and fuel costs retreat from recent highs. On that basis, Cummins is trading at 9.5 times forward earnings. The company pays an annualized dividend of $5.80, which works out to a 3% dividend yield currently. The payout ratio is well below 50%. According to the GuruFocus discounted cash flow calculator, the stock is worth approximately $250 per share using 2022 estimated earnings per share of $17.59 as a starting point and a 10-year growth rate of 6%. The discount rate used is 9%. Guru trades Gurus who have purchased Cummins stock recently include Ray Dalio (Trades, Portfolio) and Jim Simons (Trades, Portfolio)' Renaissance Technologies. Gurus who have reduced or sold out of their positions include Jeremy Grantham (Trades, Portfolio) and First Eagle Investment (Trades, Portfolio). Conclusion Cummins has survived many difficult challenges over its 100-year history and has usually come out stronger that before. This rough time of skyrocketing fuel prices is likely no different. The company has also made a concerted and mostly successful efforts to advance its products to a clean energy solution to support decarbonization efforts around the world. The 3% dividend yield and low valuation levels should provide stability during this volatile time period.