Stock Analysis on Net
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.

Present Value of Free Cash Flow to the Firm (FCFF)

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. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Cummins Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 12.29%
01 FCFF0 2,938
1 FCFF1 3,130 = 2,938 × (1 + 6.52%) 2,787
2 FCFF2 3,325 = 3,130 × (1 + 6.23%) 2,637
3 FCFF3 3,523 = 3,325 × (1 + 5.94%) 2,488
4 FCFF4 3,722 = 3,523 × (1 + 5.65%) 2,341
5 FCFF5 3,922 = 3,722 × (1 + 5.37%) 2,196
5 Terminal value (TV5) 59,671 = 3,922 × (1 + 5.37%) ÷ (12.29% – 5.37%) 33,420
Intrinsic value of Cummins Inc. capital 45,869
Less: Debt (fair value) 6,375
Intrinsic value of Cummins Inc. common stock 39,494
 
Intrinsic value of Cummins Inc. common stock (per share) $288.74
Current share price $280.29

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

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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.

Weighted Average Cost of Capital (WACC)

Cummins Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 38,338 0.86 13.88%
Debt (fair value) 6,375 0.14 2.73% = 3.74% × (1 – 26.94%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 136,779,875 × $280.29
= $38,338,031,163.75

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (48.30% + 22.60% + 21.30% + 22.50% + 20.00%) ÷ 5
= 26.94%

WACC = 12.29%

FCFF Growth Rate (g)

FCFF 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)
Interest expense 375 199 111 100 109
Net income attributable to Cummins Inc. 735 2,151 2,131 1,789 2,260
 
Effective income tax rate (EITR)1 48.30% 22.60% 21.30% 22.50% 20.00%
 
Interest expense, after tax2 194 154 87 78 87
Add: Cash dividends on common stock 921 855 809 782 761
Interest expense (after tax) and dividends 1,115 1,009 896 860 848
 
EBIT(1 – EITR)3 929 2,305 2,218 1,867 2,347
 
Loans payable 280 210 208 169 100
Commercial paper 1,496 2,574 313 323 660
Current maturities of long-term debt 118 573 59 62 31
Long-term debt 4,802 4,498 3,579 3,610 1,576
Total Cummins Inc. shareholders’ equity 8,850 8,975 8,474 8,062 7,507
Total capital 15,546 16,830 12,633 12,226 9,874
Financial Ratios
Retention rate (RR)4 -0.20 0.56 0.60 0.54 0.64
Return on invested capital (ROIC)5 5.98% 13.70% 17.56% 15.27% 23.77%
Averages
RR 0.43
ROIC 15.25%
 
FCFF growth rate (g)6 6.52%

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).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 375 × (1 – 48.30%)
= 194

3 EBIT(1 – EITR) = Net income attributable to Cummins Inc. + Interest expense, after tax
= 735 + 194
= 929

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [929 – 1,115] ÷ 929
= -0.20

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 929 ÷ 15,546
= 5.98%

6 g = RR × ROIC
= 0.43 × 15.25%
= 6.52%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (44,713 × 12.29% – 2,938) ÷ (44,713 + 2,938)
= 5.37%

where:

Total capital, fair value0 = current fair value of Cummins Inc. debt and equity (US$ in millions)
FCFF0 = the last year Cummins Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Cummins Inc. capital

FCFF growth rate (g) forecast

Cummins Inc., H-model

Microsoft Excel
Year Value gt
1 g1 6.52%
2 g2 6.23%
3 g3 5.94%
4 g4 5.65%
5 and thereafter g5 5.37%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 6.52% + (5.37% – 6.52%) × (2 – 1) ÷ (5 – 1)
= 6.23%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.52% + (5.37% – 6.52%) × (3 – 1) ÷ (5 – 1)
= 5.94%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.52% + (5.37% – 6.52%) × (4 – 1) ÷ (5 – 1)
= 5.65%