What’s to Come for Cummins Inc. (CMI)?

This despite the fact that its average 15-year beta (1.4) is less than Cummins’ 1.57. However, I think that Caterpillar will be a big benefactor of the bolstering economy. This should in turn be a big positive for Cummins. One of Navistar’s engines sold is in Caterpillar’s CT-660 on/off-road vocational truck, which will be equipped with selective catalytic reduction (SCR) equipment from Cummins. Those engines are also likely to go into Caterpillar Inc. (NYSE:CAT)’s trucks.

Navistar still calls billionaire activist Car Icahn one of its top shareholders. However, Icahn dumped his Oshkosh stake during the fourth quarter of 2012, abandoning the idea to put pressure on the two companies – Navistar and Oshkosh – to merge their defense units.

By the numbers

Cummins Inc. (NYSE:CMI) is relatively cheap compared to major peers and trades near the low end of its five year price to earnings trading range, 4.9 times to 26.4 times.

	Cummins	Brunswick	Generac	Navistar
Forward P/E	10.5	11.5	10.4	14.0

However, Cummins has superior ability to generate higher returns for shareholders:

	Cummins	Brunswick	Generac
Return on investment	23%	11.50%	10.40%
Return on assets	13.3%	5.8%	6.0%

Cummins also has a strong balance sheet:

	Cummins	Brunswick	Generac	Navistar
Debt ratio	6%	23%	56%	52%

Don’t be fooled

Cummins Inc. (NYSE:CMI) also offers investors a 1.8% dividend yield, and although the valuation doesn’t make company “super” cheap, the fact that Cummins has an industry leading balance sheet and superior returns (ROI and ROA), I think they should trade at a premium valuation to some of the other engine-related manufacturers.

The article What’s to Come for Cummins? originally appeared on Fool.com and is written by Marshall Hargrave.

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