Cummins Inc. (CMI) currently trades at a premium across key valuation multiples compared to its own five-year historical averages, suggesting a re-rating by the market. While its Price-to-Earnings (P/E) and Enterprise Value-to-EBITDA (EV/EBITDA) multiples are broadly in line with its industry peers, the Price-to-Book (P/B) multiple stands out, indicating a significant premium. The company's valuation trend is stable, reflecting a consistent market perception of its value, which has historically been at a premium. These elevated multiples imply market expectations for sustained operational performance, potentially higher growth, or superior returns on capital compared to its past performance.
Key Findings
- Cummins Inc. (CMI) is currently valued at a significant premium to its 5-year historical averages across P/E, P/B, and EV/EBITDA, indicating increased investor confidence or re-rating.
- CMI's P/E (24.8x) and EV/EBITDA (13.9x) multiples are largely in-line with its peer group, suggesting it is not an outlier in terms of operational valuation within its industry.
- The P/B multiple of 5.70x represents a substantial premium of +33.8% compared to the peer median (4.26x) and +48.8% against its own 5-year average (3.83x), which could be justified by higher returns on equity or strong intangible assets.
- The market appears to be pricing in expectations for continued robust performance and operational efficiency for CMI, given its stable valuation trend and historical premium positioning.
Company Valuation Highlights
CMI:
Cummins Inc. trades at a notable premium to its historical valuation, with its P/E multiple of 24.8x being 28.2% above its 5-year average and its EV/EBITDA of 13.9x also significantly higher than its historical average of 9.7x. While its P/E and EV/EBITDA are comparable to peer medians (25.0x and 14.4x respectively), the P/B multiple of 5.70x stands at a considerable 33.8% premium to its peers, suggesting the market highly values CMI's equity and assets, potentially due to superior returns or brand strength. Investors should consider whether current growth prospects and returns justify this sustained premium valuation.
| Company |
P/E |
Hist Avg |
Fwd P/E |
PEG |
P/B |
EV/EBITDA |
P/S |
Position |
| CMI |
24.8x |
19.3x |
17.2x |
0.67x
|
5.70x |
13.9x |
2.09x |
Premium
|
Historical Percentile Position
Where current multiples sit relative to full historical range (higher percentile = more expensive vs history)
| Company |
P/E %ile |
P/E Range |
P/B %ile |
P/B Range |
EV/EBITDA %ile |
P/S %ile |
| CMI |
73th
|
10.1x - 46.2x
|
91th
|
2.12x - 5.7x
|
91th
|
91th
|
Peer Valuation Comparison
How each company's valuation compares to its industry peers
CMI vs 10 Peers
In-Line
P/E Ratio
24.8x
Peer Median: 25.0x
(-1.1%)
P/B Ratio
5.70x
Peer Median: 4.26x
(+33.8%)
EV/EBITDA
13.9x
Peer Median: 14.4x
(-3.3%)
P/S Ratio
2.09x
Peer Median: 5.07x
(-58.7%)
View all 10 peers
| Peer |
P/E |
P/B |
EV/EBITDA |
P/S |
Market Cap |
| CMI |
24.8x |
5.70x |
13.9x |
2.09x |
- |
| ITW |
26.3x |
24.96x |
18.9x |
4.98x |
$79.9B |
| CNI |
18.9x |
4.14x |
12.1x |
5.13x |
$88.7B |
| ROP |
25.6x |
1.98x |
14.4x |
5.01x |
$39.6B |
| FDX |
20.1x |
3.10x |
11.1x |
0.94x |
$84.7B |
| NSC |
23.7x |
4.38x |
14.3x |
5.58x |
$68.0B |
| AME |
34.4x |
4.79x |
25.3x |
6.90x |
$51.1B |
| URI |
20.6x |
5.72x |
10.4x |
3.20x |
$51.5B |
| PCAR |
26.7x |
3.29x |
13.8x |
2.23x |
$63.3B |
| CP |
24.4x |
2.21x |
14.8x |
6.71x |
$101.2B |
| CSX |
25.8x |
5.66x |
14.8x |
5.27x |
$74.3B |
| Peer Median |
25.0x |
4.26x |
14.4x |
5.07x |
- |
Cummins Inc. (CMI) exhibits a total Enterprise Value (EV) of $74.79 billion. The composition of this EV is predominantly equity-driven, with its Market Capitalization of $74.44 billion forming the vast majority. Net Debt, calculated as Total Debt of $7.24 billion less Cash of $2.85 billion, stands at $4.39 billion, representing a relatively minor component of the overall enterprise value. This structure indicates that the company is largely funded by equity, with a conservative approach to debt financing.
From a valuation multiples perspective, CMI currently trades at an EV/EBITDA of 13.9x and an EV/Sales of 2.22x. These metrics provide insight into how the market values the company's total business operations (including both equity and debt) relative to its operational profitability and revenue generation. The EV/EBITDA ratio reflects the market's valuation per unit of core operating earnings, while EV/Sales indicates valuation per unit of revenue. Without specific industry benchmarks for comparison, these figures represent the current market's assessment of CMI's operating assets and its capacity to generate earnings and sales.
The capital structure of CMI appears robust, characterized by a low leverage profile. This is further supported by the company's Net Debt/EBITDA ratio, which signifies its ability to cover its net debt obligations with operational earnings. A conservative capital structure can often imply lower financial risk and greater flexibility for strategic investments.
Key Findings
- CMI's Enterprise Value of $74.79 billion is overwhelmingly driven by its Market Capitalization of $74.44 billion, indicating a strong reliance on equity financing over debt.
- The company trades at an EV/EBITDA multiple of 13.9x and an EV/Sales multiple of 2.22x, reflecting the market's current valuation of CMI's operational assets relative to its core profitability and revenue.
- Cummins Inc. maintains a highly conservative capital structure, evidenced by a Net Debt/EBITDA ratio of 0.82x, classifying it in the 'Low' leverage tier.
Leverage Assessment
Cummins Inc. demonstrates a conservative and healthy leverage profile. With Total Debt at $7.24 billion and Cash reserves of $2.85 billion, the company's Net Debt stands at $4.39 billion. This translates to a Net Debt/EBITDA ratio of 0.82x, which is classified as 'Low' leverage. This low leverage ratio signifies a robust balance sheet, indicating that CMI generates substantial operational earnings relative to its net debt obligations. Such a capital structure implies reduced financial risk, ample financial flexibility, and significant capacity for future borrowing, should the company pursue growth initiatives, capital expenditures, or strategic acquisitions without undue strain on its financial health. This conservative approach provides a strong foundation for long-term stability.
| Company |
Market Cap |
EV |
Net Debt |
EV/EBITDA |
Hist Avg |
EV/Sales |
EV/FCF |
Leverage |
| CMI |
$74.44B |
$74.79B |
$4.39B
|
13.9x |
9.7x |
2.22x |
31.3x |
Low
|
Leverage Analysis
| Company |
Net Debt/EBITDA |
Hist Avg |
Hist Range |
Debt % of EV |
Leverage Tier |
| CMI |
0.82x
|
0.65x |
-0.04x - 1.66x
|
9.7% |
Low
|
Our Discounted Cash Flow (DCF) analysis for Cummins Inc. (CMI) reveals a significant potential overvaluation based on both historical and forward-looking free cash flow projections. The current market price of $538.75 stands considerably above our calculated intrinsic values, which are impacted by the higher interest rate environment. The transition from near-zero Fed Funds rates in the 2015-2021 period to the current normalized 10-year Treasury yield of 4.27% has resulted in an elevated Weighted Average Cost of Capital (WACC) of 7.52% for CMI. This higher discount rate inherently compresses intrinsic valuations compared to a low-rate environment, reflecting a higher required return on investment.
A notable divergence exists between CMI's Historical DCF and Analyst DCF valuations. The Historical DCF, which projects future cash flows based on the company's robust 10-year Free Cash Flow CAGR of 6.6%, yields an intrinsic value of $428.28. This suggests a potential downside of 20.5% from the current market price. In stark contrast, the Analyst DCF, which relies on consensus analyst revenue estimates combined with historical FCF margins, results in a significantly lower intrinsic value of $297.36, implying a much steeper potential downside of 44.8%. This substantial difference primarily stems from a marked slowdown in CMI's recent FCF growth, with the 5-year CAGR at a more modest 2.1%. Analysts appear to be projecting future FCF generation based on this more recent, subdued trend, or even anticipate a contraction relative to the long-term historical average, leading to a much more conservative valuation.
The significant disparity between CMI's market price and both DCF models suggests that the market may be pricing in growth drivers or strategic advantages not fully captured by our conservative FCF projections or current analyst consensus. Investors might be anticipating stronger performance from CMI's initiatives in new power technologies (e.g., hydrogen, electric powertrains) or a more robust cyclical recovery in the industrial sector than what is currently reflected in short-to-medium term cash flow forecasts. Alternatively, it could indicate that the stock is trading at a premium driven by market sentiment or momentum, rather than its underlying free cash flow generation potential as assessed by these intrinsic valuation methods.
Key Findings
- Both DCF methodologies indicate that Cummins Inc. (CMI) is significantly overvalued at its current market price of $538.75, with potential downsides ranging from 20.5% to 44.8%.
- The higher interest rate environment, characterized by a 10-year Treasury yield of 4.27%, results in an elevated WACC (7.52% for CMI), which compresses intrinsic valuations compared to prior low-rate periods seen between 2015-2021.
- A substantial divergence exists between CMI's Historical DCF ($428.28) and Analyst DCF ($297.36), reflecting a more conservative outlook from analysts on future FCF generation compared to the company's 10-year historical growth trend (6.6% vs. 2.1% 5Y CAGR).
- The market's current valuation for CMI may be incorporating optimistic growth expectations related to new technologies or a stronger cyclical recovery that are not yet fully reflected in historical FCF trends or consensus analyst estimates.
DCF Verdicts by Company
CMI:
Significantly Overvalued
Risk-Free Rate (10Y Treasury):
4.27%
Market Risk Premium:
3.13%
BAA Spread:
1.63%
Terminal Growth Rate:
Varies by sector (2.0% - 3.5%)
Methodology Note:
- Market Risk Premium: Calculated dynamically based on credit spreads.
Formula:
ERP = 3.0% + (BAA Spread - 1.5%).
When spreads are tight, ERP is lower; when spreads widen, ERP increases.
- Terminal Growth Rate: Sector-based assumptions:
Technology, Communication Services: 3.5% |
Healthcare, Consumer Cyclical: 3.0% |
Industrials, Financials, Consumer Defensive, Materials: 2.5% |
Energy, Utilities, Real Estate: 2.0%
- Shares Outstanding: Adjusted for historical buyback trends when applicable.
| Company |
Current Price |
Historical DCF |
Upside |
Analyst DCF |
Upside |
Verdict |
| CMI |
$538.75 |
$428.28 |
-20.5%
|
$297.36 |
-44.8%
|
Significantly Overvalued
|
CMI – Cummins Inc.
WACC Calculation
| Risk-Free Rate (Rf) |
4.27% |
| Beta (β) |
1.13 |
| Market Risk Premium |
5.50% |
| Cost of Equity (Ke = Rf + β × MRP) |
7.80% |
| Cost of Debt (after-tax) |
4.66% |
| WACC |
7.52% |
Historical Free Cash Flow
| Metric |
2021 |
2022 |
2023 |
2024 |
2025 |
| FCF ($B) |
$1.5B |
$1.0B |
$2.8B |
$0.3B |
$2.4B |
| FCF Margin (%) |
6.1% |
3.7% |
8.1% |
0.8% |
7.1% |
FCF CAGRs:
5Y: 2.1% |
10Y: 6.6%
| Avg FCF Margin (5Y): 5.2%
DCF Valuation (Two Methods)
| Component |
Historical Method
(10Y CAGR projection) |
Analyst Method
(Revenue × FCF Margin) |
| Growth Assumption |
6.6% (10Y CAGR) |
Analyst Revenue Est. × 5.2% margin |
| PV of Projected FCF |
$11.63B |
$8.81B |
| Terminal Value |
$67.05B |
$47.42B |
| PV of Terminal Value |
$46.66B |
$33.00B |
| Enterprise Value |
$58.29B |
$41.81B |
| (-) Net Debt |
$4.39B |
$4.39B |
| Equity Value |
$53.89B |
$37.42B |
| Intrinsic Value per Share |
$428.28 |
$297.36 |
| vs Current Price ($538.75) |
-20.5%
|
-44.8%
|
Sensitivity Analysis (Historical Method)
Intrinsic value per share varying WACC and Terminal Growth Rate
| WACC ↓ / TG → |
1.5% |
2.0% |
2.5% |
3.0% |
3.5% |
| 5.5% |
$569
|
$645
|
$745
|
$885
|
$1096
|
| 6.5% |
$447
|
$492
|
$548
|
$621
|
$717
|
| 7.5% |
$365
|
$395
|
$430
|
$474
|
$528
|
| 8.5% |
$307
|
$327
|
$351
|
$380
|
$414
|
| 9.5% |
$263
|
$278
|
$295
|
$315
|
$339
|
Current price: $538.75 | Highlighted row shows base case WACC (7.52%)
Verdict:
Significantly Overvalued
(Combined upside: -32.7%, DCF Confidence: Medium)
DCF Summary Comparison
| Company |
Current Price |
Historical DCF |
Analyst DCF |
Combined Upside |
Verdict |
| CMI |
$538.75 |
$428.28
(-20.5%)
|
$297.36
(-44.8%)
|
-32.7%
|
Significantly Overvalued
|
Analyst sentiment surrounding Cummins Inc. (CMI) appears largely positive, with a consensus 'Buy' rating and a significant expected upside to the current share price. The prevailing outlook suggests a favorable trajectory, as evidenced by rising price targets and an anticipated contraction in the company's P/E multiple. This indicates that analysts are increasingly optimistic about CMI's future earnings power and its potential to deliver shareholder value.
Key Findings
- Cummins (CMI) exhibits a strong upward trend in analyst price targets, reflecting improved sentiment over the past year.
- The significant compression in CMI's P/E multiple from TTM 26.1x to Forward 17.2x indicates robust expected earnings growth.
- The consensus price target for CMI of $618.40 implies a substantial 14.8% upside from its current price of $538.75.
- Despite the overall positive sentiment, CMI's wide target range, from $540.00 to $703.00, suggests some divergence in the magnitude of expected future performance among analysts.
Price Target Trend Analysis
The price target trend for Cummins Inc. (CMI) is strongly positive, with targets rising by an impressive 23.0% over the last year. This evolution from an average of $566.05 a year ago to a recent average of $696.00 signals a clear improvement in analyst sentiment and an increasingly optimistic outlook for the company's future performance. Such a sustained increase typically indicates growing confidence in CMI's business fundamentals, strategic initiatives, or market positioning, suggesting that the investment community perceives a higher intrinsic value for the stock than previously recognized.
P/E Trajectory Analysis
Cummins Inc. (CMI) shows a notable P/E trajectory, with its TTM P/E of 26.1x contracting significantly to a Forward P/E of 17.2x, representing a 34.1% reduction. This substantial P/E compression is a strong indicator that analysts are forecasting robust earnings growth for CMI in the near future. A lower forward P/E compared to the trailing P/E suggests that the market expects earnings to grow at a faster rate than the current share price, making the stock appear more attractively valued on a forward-looking basis. For investors, this implies that CMI's current valuation may not fully reflect its anticipated earnings power, potentially offering an opportunity if these growth expectations are met.
Analyst Price Targets
| Company |
Current Price |
Target Consensus |
Target Low |
Target High |
Upside |
Analysts |
Sentiment |
| CMI |
$538.75 |
$618.40 |
$540.00 |
$703.00 |
+14.8%
|
11 |
Buy
|
Price Target Evolution
How analyst targets have changed over time - rising targets signal improving sentiment
| Company |
Last Month Avg |
Last Quarter Avg |
Last Year Avg |
Change (M vs Y) |
Trend |
| CMI |
$696.00
(1)
|
$615.25
(12)
|
$566.05
(21)
|
+23.0%
|
Rising
|
Forward Estimates & P/E Comparison
Comparing trailing (TTM) vs forward P/E reveals market expectations for earnings growth
| Company |
Forward EPS |
Forward Revenue |
TTM P/E |
Forward P/E |
P/E Change |
Estimate Year |
| CMI |
$31.27 |
$38.68B |
26.1x |
17.2x |
-34.1%
(Strong growth expected)
|
FY2027 |
Reading P/E Change: Negative change (TTM P/E > Forward P/E) suggests analysts expect earnings growth.
Positive change indicates earnings may decline. Large differences warrant investigation into the growth story.
Our comprehensive valuation analysis for Cummins Inc. (CMI) reveals a complex picture with significant divergence across various methodologies. While the current share price of $538.75 aligns closely with a median implied value of $573.68, suggesting a modest upside of 6.5%, the underlying methods present a remarkably wide range of potential values. This broad spectrum, spanning from $402.63 to $1305.71, indicates considerable uncertainty regarding the company's intrinsic value and aligns with a consensus view of 'Fairly Valued'.
Specific peer-based multiples, such as Price-to-Sales (P/S) and Price-to-Earnings (P/E), suggest substantial undervaluation, implying potential upsides of 142.4% and 45.3% respectively. Conversely, the Price-to-Book (P/B) multiple and our Discounted Cash Flow (DCF) model point to potential overvaluation, with implied downsides of 25.3% and 20.5%. The EV/EBITDA multiple and the Wall Street Analyst Target provide more conservative views, with the former indicating a slight downside of 1.8% and the latter suggesting a moderate upside of 14.8%. This wide disparity underscores the challenges in establishing a precise fair value for CMI.
Key Takeaways
- Cummins Inc. (CMI) currently trades at $538.75, with a median implied value of $573.68, suggesting a modest 6.5% upside. However, the overall consensus classifies CMI as 'Fairly Valued'.
- The valuation range for CMI is exceptionally wide, from a low of $402.63 (P/B Peer) to a high of $1305.71 (P/S Peer), indicating significant disagreement among valuation methods and high uncertainty regarding intrinsic value.
- While peer-based P/S and P/E multiples suggest strong undervaluation, pointing to potential upsides of 142.4% and 45.3% respectively, the DCF model and P/B multiple indicate potential overvaluation, with implied downsides of 20.5% and 25.3%.
- The EV/EBITDA multiple ($528.96, -1.8%) and the Analyst Target ($618.40, +14.8%) provide more balanced perspectives, closer to the current trading price, but do not resolve the broader divergence.
- The extreme divergence across methodologies implies that investors must carefully consider their preferred valuation framework and acknowledge the heightened risk associated with such a wide range of potential outcomes.
Investment Implications
For investors considering Cummins Inc., the valuation analysis suggests a 'Fairly Valued' status with a modest implied upside based on the median of various methods. However, the exceptionally wide range of potential values, from significant undervaluation by P/S and P/E to notable overvaluation by P/B and DCF, introduces a high degree of uncertainty. This divergence means that CMI's valuation is highly sensitive to the specific metric or assumptions an investor prioritizes. Those focusing on revenue or earnings multiples relative to peers might see an attractive entry point, while those relying on book value or discounted future cash flows might view the stock as potentially overextended. Given this broad spectrum, investors should conduct thorough due diligence beyond just valuation, focusing on CMI's operational outlook, competitive landscape, and capital allocation strategies to form a conviction. The current price reflects a market that is likely grappling with these same conflicting valuation signals, necessitating a nuanced approach rather than a straightforward 'buy' or 'sell' decision based on a single metric.
Comprehensive Valuation Summary
Aggregated implied values from multiple valuation methods: P/E, P/B, EV/EBITDA, P/S (peer-based), DCF, and Analyst Targets
| Company |
Current Price |
Valuation Range |
Median Value |
Median Upside |
Methods |
Consensus |
| CMI |
$538.75 |
$402.63 - $1305.71
|
$573.68 |
+6.5%
|
6 |
Fairly Valued
|
Valuation Details by Method
Implied values from each valuation methodology for individual companies
CMI – Cummins Inc.
Current: $538.75
Fairly Valued
| Method |
Implied Value |
Upside/Downside |
Basis |
| P/E (Peer) |
$782.81 |
+45.3%
|
Peer median P/E (25.0x) × Forward EPS ($31.27) |
| P/B (Peer) |
$402.63 |
-25.3%
|
Peer median P/B (4.26x) × Book Value per Share |
| EV/EBITDA (Peer) |
$528.96 |
-1.8%
|
Peer median EV/EBITDA (14.4x) × EBITDA - Net Debt |
| P/S (Peer) |
$1305.71 |
+142.4%
|
Peer median P/S (5.07x) × Revenue per Share |
| DCF |
$428.28 |
-20.5%
|
Revenue × FCF Margin projection |
| Analyst Target |
$618.40 |
+14.8%
|
Consensus of 11 analysts |
| Median |
$573.68 |
+6.5%
|
Based on 6 methods |