Stock Analysis on Net

Cummins Inc. (NYSE:CMI)

This company has been moved to the archive! The financial data has not been updated since May 2, 2024.

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Cummins Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 13.88%
0 DPS01 6.50
1 DPS1 7.58 = 6.50 × (1 + 16.63%) 6.66
2 DPS2 8.74 = 7.58 × (1 + 15.30%) 6.74
3 DPS3 9.96 = 8.74 × (1 + 13.96%) 6.74
4 DPS4 11.22 = 9.96 × (1 + 12.63%) 6.67
5 DPS5 12.49 = 11.22 × (1 + 11.30%) 6.52
5 Terminal value (TV5) 538.45 = 12.49 × (1 + 11.30%) ÷ (13.88%11.30%) 281.11
Intrinsic value of Cummins Inc. common stock (per share) $314.43
Current share price $280.29

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of Cummins Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.67%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Cummins Inc. common stock βCMI 1.01
 
Required rate of return on Cummins Inc. common stock3 rCMI 13.88%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rCMI = RF + βCMI [E(RM) – RF]
= 4.67% + 1.01 [13.79%4.67%]
= 13.88%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Cummins Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Cash dividends on common stock 921 855 809 782 761
Net income attributable to Cummins Inc. 735 2,151 2,131 1,789 2,260
Net sales 34,065 28,074 24,021 19,811 23,571
Total assets 32,005 30,299 23,710 22,624 19,737
Total Cummins Inc. shareholders’ equity 8,850 8,975 8,474 8,062 7,507
Financial Ratios
Retention rate1 -0.25 0.60 0.62 0.56 0.66
Profit margin2 2.16% 7.66% 8.87% 9.03% 9.59%
Asset turnover3 1.06 0.93 1.01 0.88 1.19
Financial leverage4 3.62 3.38 2.80 2.81 2.63
Averages
Retention rate 0.61
Profit margin 8.79%
Asset turnover 1.01
Financial leverage 3.05
 
Dividend growth rate (g)5 16.63%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income attributable to Cummins Inc. – Cash dividends on common stock) ÷ Net income attributable to Cummins Inc.
= (735921) ÷ 735
= -0.25

2 Profit margin = 100 × Net income attributable to Cummins Inc. ÷ Net sales
= 100 × 735 ÷ 34,065
= 2.16%

3 Asset turnover = Net sales ÷ Total assets
= 34,065 ÷ 32,005
= 1.06

4 Financial leverage = Total assets ÷ Total Cummins Inc. shareholders’ equity
= 32,005 ÷ 8,850
= 3.62

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.61 × 8.79% × 1.01 × 3.05
= 16.63%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($280.29 × 13.88%$6.50) ÷ ($280.29 + $6.50)
= 11.30%

where:
P0 = current price of share of Cummins Inc. common stock
D0 = the last year dividends per share of Cummins Inc. common stock
r = required rate of return on Cummins Inc. common stock


Dividend growth rate (g) forecast

Cummins Inc., H-model

Microsoft Excel
Year Value gt
1 g1 16.63%
2 g2 15.30%
3 g3 13.96%
4 g4 12.63%
5 and thereafter g5 11.30%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 16.63% + (11.30%16.63%) × (2 – 1) ÷ (5 – 1)
= 15.30%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 16.63% + (11.30%16.63%) × (3 – 1) ÷ (5 – 1)
= 13.96%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 16.63% + (11.30%16.63%) × (4 – 1) ÷ (5 – 1)
= 12.63%