In my previous articles, I wrote about several stocks, including Mosaic Co (NYSE:MOS), Johnson Controls, Inc. (NYSE:JCI), SYSCO Corporation (NYSE:SYY) and Parker-Hannifin Corporation (NYSE:PH), that possess characteristics similar to those that had been purchased by legendary investor Warren Buffett. These stocks were the screening results of Thompson Reuters’ StarMine model. In this article, I will cover one more stock that could become one of Warren Buffett’s favorites: Cummins Inc. (NYSE:CMI).
Cummins, founded in 1919, is the global leading manufacturer and distributor of diesel and natural gas engines and engine-related component products to original equipment manufacturers (OEMs), distributors, and other customers in more than 190 countries. The business operates with four main business segments: Engine, Components, Power Generation and Distribution. The majority of its sales, $10.73 billion, or 62% of total 2012 sales, was generated from the Engine segment. The Components segment ranked second, with $4 billion in revenue, or 23% of the total sales, while the Power Generation segment and the Distribution segment contributed $3.27 billion and $3.28 billion in revenue, respectively. The Engine segment also generates the largest operating income of $1.25 billion in 2012, while the Components segment contributed $426 million in operating income.
A consistently growing company
In the past ten years, Cummins Inc. (NYSE:CMI) has experienced significant growth in both revenue and profits. Revenue has increased from $6.3 billion in 2003 to $17.3 billion in 2012, while EPS has risen from $0.32 to $8.67 in the same period. In addition, Cummins has generated an increasing operating cash flow, from $158 million in 2003 to $1.53 billion in 2012. Income investors might like Cummins a lot as it is quite a consistent dividend-paying company. Since 2003, its dividend has been raised from $0.30 per share to $1.80 per share. Interestingly, Cummins Inc. (NYSE:CMI) is becoming more conservative when it comes to dividend payments. Its 2012 payout ratio stayed at only 20.8%.
What interests me is the fact that Cummins does not employ a lot of leverage in its operations. As of December 2012, it had $6.6 billion in total stockholders’ equity, $1.6 billion in cash, and only nearly $770 million in both long and short-term debt. The three main big items in its liabilities were its account payable ($1.34 billion), accrued liabilities ($1.3 billion) and deferred revenue ($1.3 billion). Cummins has also been repurchasing its shares: since 2008, Cummins Inc. (NYSE:CMI) has spent nearly $1.2 billion to buy back its shares.