Is Cummins Inc. (CMI) Destined for Greatness?

Page 1 of 2

Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let’s take a look at what Cummins Inc. (NYSE:CMI)‘ recent results tell us about its potential for future gains.

What the numbers tell you
The graphs you’re about to see tell Cummins Inc. (NYSE:CMI)’ story, and we’ll be grading the quality of that story in several ways.

Cummins Inc. (NYSE:CMI)Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company’s become more efficient over time. Since profits may not always reported at a steady rate, we’ll also look at how much Cummins Inc. (NYSE:CMI)’ free cash flow has grown in comparison to its net income.

A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If Cummins Inc. (NYSE:CMI)’ share price has kept pace with its earnings growth, that’s another good sign that its stock can move higher.

Is Cummins Inc. (NYSE:CMI) managing its resources well? A company’s return on equity should be improving, and its debt-to-equity ratio declining, if it’s to earn our approval.

Healthy dividends are always welcome, so we’ll also make sure that Cummins Inc. (NYSE:CMI)’ dividend payouts are increasing, but at a level that can be sustained by its free cash flow.

By the numbers
Now, let’s look at Cummins’ key statistics.

CMI Total Return Price Chart

CMI Total Return Price data by YCharts.

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% 60.5% Pass
Improving profit margin 8.3% Pass
Free cash flow growth > Net income growth 1.9% vs. 284.3% Fail
Improving EPS 301.4% Pass
Stock growth (+ 15%) < EPS growth 163.8% vs. 301.4% Pass

Source: YCharts.
*Period begins at end of Q4 2009.

CMI Return on Equity Chart

CMI Return on Equity data by YCharts.

Passing Criteria 3-Year* Change Grade
Improving return on equity 117.2% Pass
Declining debt to equity (33.8%) Pass
Dividend growth > 25% 185.7% Pass
Free cash flow payout ratio < 50% 39.9% Pass

Source: YCharts.
*Period begins at end of Q4 2009.

How we got here and where we’re going
Cummins sure looks to be justifying its recent placement atop The Motley Fool’s list of America’s Best Companies — at least from an investor standpoint. The engine maker misses out on a perfect score only because its net income has grown faster than its free cash flow. This isn’t cause for concern, as Cummins’ free cash flow has been higher than its net income for all of our tracking period, and even today it remains more than twice as high as reported net income. Any growth in the future would be icing on the cake. But what will it take for Cummins to earn a very rare perfect score?

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!