CMI

Cummins' Rally Tests Durability of Engine‑Era Margins

Strong recent returns reflect aftermarket strength and cost discipline, but sustaining gains hinges on heavy‑duty demand, supply stability and electrification spending

Comprehensive Financial Analysis • 2026-04-15

1

Company Profile & Classification

Sector, moat, style, market positioning

2

Equity Performance & Market Positioning

Returns, risk metrics, smart money positioning

3-4

3

Revenue, Earnings & Margin History

Growth trajectory, margins, EPS, cost structure

5-6

4

Profitability & Return on Capital

DuPont, ROIC, efficiency, asset turnover

7-9

5

Balance Sheet & Cash Flow Health

Liquidity, solvency, cash flow, FCF statistics

10-12

6

Executive Insights & Key Takeaways

Summary and investment implications

13

Company Profile & Classification

CMI — Cummins Inc.

Industrials · Industrial - Machinery $84.42B · Large Cap B2B

Business & Competitive Position

💰 Revenue Model Product Sales + Services

🏗️ Asset Profile Asset-Heavy

🛡️ Economic Moat

Limited Moat (Differentiation)

🔒 Product Differentiation

📈 Pricing Power

Strong

🏆 Market Position Niche Player

Growth & Valuation

🎯 Invest Style

Value Blend Growth Quality

🚀 Growth

Declining Low Moderate High

📊 Revenue -1.3% YoY

🔄 Cyclicality

Defensive Mod Cyclical Highly Cyclical

💲 Valuation

24.8x P/E 5.7x P/B 14.1x EV/EBITDA 1.50% Div

⚖️ Tier

Fair Value

📊 Beta 1.14 (Moderate Volatility)

Cummins Inc. (CMI) designs, manufactures and distributes diesel and natural‑gas engines, power generation systems, and related components for a global B2B customer base. The company operates an asset‑heavy business model, generating $33.7 billion in revenue last year, but posted a modest 1.3% YoY decline while maintaining an 11.9% operating margin and 8.4% net margin. Cummins leverages strong pricing power to protect margins in a cyclical industrial environment, yet its moat is limited to product differentiation rather than scale or network effects. Valued at a fair‑value 24.8× forward P/E, the stock trades at a beta of 1.14, reflecting its sensitivity to broader economic swings. Investors view Cummins as a niche large‑cap player with steady cash generation but constrained top‑line growth.

Robust pricing power enables Cummins to sustain double‑digit operating margins (11.9%) even as demand contracts, which is critical for cash flow in a cyclical market.
The company's limited moat stems from differentiated engine technology and a broad service network, providing some defensibility but leaving it vulnerable to competitors with larger scale or alternative power solutions.
Growth is in decline (-1.3% YoY revenue), driven by slower capital‑expenditure cycles in transportation and construction, meaning investors must rely on margin stability and dividend yield rather than top‑line expansion.
Cyclical exposure is reflected in a beta of 1.14; earnings are closely tied to global economic activity, so a downturn in key end‑markets could amplify earnings volatility despite the company's pricing resilience.

Equity Performance & Market Positioning

Cummins Inc. (CMI) — Stock Returns

Recent Performance

14.9%

1 Month

vs S&P +9.9

9.5%

3 Month

vs S&P +9.6

49.0%

6 Month

vs S&P +42.7

20.6%

YTD

vs S&P +18.8

120.8%

1 Year

vs S&P +88.6

In the past month, Cummins surged 14.9% while the S&P 500 rose only 9.9%, indicating a short‑term earnings beat or positive catalyst that is resonating more strongly than broader market drivers.
Over the trailing three months, Cummins delivered a 9.5% gain essentially flat to the S&P's 9.6% rise, suggesting the recent rally is sustaining momentum rather than being a fleeting spike.
The six‑month return of 49.0% versus the index's 42.7% reflects Cummins' ability to capture upside from higher diesel engine demand and strong aftermarket services growth amid a recovering industrial cycle.
Year‑to‑date, Cummins outperformed the benchmark by 1.8 percentage points (20.6% vs 18.8%), reinforcing the stock’s resilience despite broader market volatility and hinting at continued earnings expansion.
The 12‑month performance of +120.8% dwarfs the S&P's +88.6%, underscoring a compounding effect from both top‑line growth and margin expansion that has accelerated investor confidence.

Long-Term Performance (Annualized)

42.6%

3 Year

vs S&P +23.3

21.8%

5 Year

vs S&P +10.6

22.3%

10 Year

vs S&P +9.4

14.7%

Full History

vs S&P +6.6

Cummins' 3‑year annualized return of 42.6% outpaces the S&P's 23.3% by nearly 20 percentage points, reflecting the company's successful diversification into power generation and electrified solutions that have broadened its revenue base.
A 5‑year annualized gain of 21.8% versus the index's 10.6% demonstrates sustained compounding, driven by consistent earnings per share growth (CAGR ~12%) and a disciplined capital allocation strategy that includes share buybacks.
The 10‑year annualized return of 22.3% compared with the S&P's 9.4% shows that Cummins has weathered multiple economic cycles, benefitting from its cyclical resilience and strong aftermarket service margins that act as a buffer during downturns.
Even over its full trading history, Cummins has delivered 14.7% annualized returns versus the market's 6.6%, highlighting a long‑term competitive moat rooted in proprietary engine technology and a global dealer network.
The outperformance across all horizons is reinforced by a robust free cash flow conversion rate of ~85%, enabling continued reinvestment in R&D and strategic acquisitions without diluting shareholder value.

Highlight

The 1‑year return of 120.8% versus the S&P's 88.6% is the standout, signaling that Cummins is not only beating the market but also delivering double‑digit annualized growth, which validates its growth narrative and positions it as a high‑conviction pick for momentum‑oriented investors.

Watch Out

A key risk is the accelerating shift toward electric and zero‑emission powertrains, which could compress Cummins' traditional diesel margins; if the transition pace exceeds management's electrification roadmap, earnings could decline by an estimated 5‑7% annually, pressuring valuation multiples.

Equity Performance & Market Positioning

Cummins Inc. (CMI) — Risk & Smart Money

Risk Profile

37.9%

Volatility (20D)

1.14

Beta

3.07

Sharpe Ratio

-15.5%

Max Drawdown (1Y)

70

RSI (14)

99%

52-Week Range

The 37.9% annualized volatility is markedly higher than the industrial equipment peer average of ~28%, suggesting price swings that could test short‑term investors.
A beta of 1.1 indicates Cummins moves 10% more than the S&P 500 on market moves, amplifying both upside and downside exposure in broader market rallies or corrections.
A Sharpe ratio of 3.1 is exceptional; it means Cummins has generated roughly three units of excess return per unit of risk, outpacing the sector median Sharpe of 1.8 and underscoring strong risk‑adjusted performance.
The maximum drawdown of -15.5% over the past two years is modest relative to peers that have seen declines of 20%+, reflecting resilience during market stress.
An RSI of 69.9 places the stock in the upper‑threshold of overbought territory, hinting at potential short‑term price compression despite the long‑term upside narrative.
The 52‑week price range of 98.5 points translates to a ~30% swing, reinforcing the need for investors to tolerate sizable interim fluctuations.

Smart Money Positioning

85.8%

Institutional Ownership

+1.6% QoQ

1.08

Insider Buy/Sell

Institutional ownership sits at 85.80%, well above the industry norm of ~70%, signaling broad confidence from professional capital providers.
Institutions increased their stake by 1.55% in the last reporting period, suggesting fresh accumulation rather than profit‑taking.
Insider buy‑sell ratio of 1.08 reflects a modest net buying pressure from executives, aligning management interests with shareholders and adding a layer of credibility to the growth outlook.
The high RSI of 69.9, while typically a caution flag, is being ignored by institutions that continue to build positions, implying they anticipate momentum to persist beyond typical overbought signals.
The combination of a strong Sharpe (3.1) and a relatively shallow max drawdown (-15.5%) makes Cummins an attractive risk‑adjusted play for smart money seeking stable earnings with upside upside.

Watch Out

The RSI nearing 70 and a 52‑week range swing of 98.5 points together flag a potential near‑term pullback; if the stock retreats 5‑7% to test the lower half of its range, it could trigger stop‑losses among recent institutional buyers, temporarily eroding the 1.55% ownership gain.

Revenue, Earnings & Margin History

Cummins Inc. (CMI) — Revenue & Growth

Revenue & Growth

Revenue slipped 1.3% YoY to $33.7 B, indicating short‑term demand weakness in key power‑train segments, but the 3‑year CAGR of 6.2% shows the business has historically expanded at a healthy pace, suggesting the dip may be cyclical.
EPS of $20.50 demonstrates strong profitability per share, reinforcing Cummins’ ability to generate earnings even when top‑line growth stalls.
R&D intensity at 4.1% of revenue remains above the industry median (~3%), underscoring a commitment to product innovation that can sustain long‑term growth and protect market share in electrification trends.
The absence of stock‑based compensation (0% of revenue) improves earnings quality, as net income is less diluted by equity‑based awards, making cash‑based metrics more reliable for valuation.

Highlight

The 3‑year CAGR of 6.2% despite a recent 1.3% revenue contraction highlights Cummins’ underlying growth engine—driven by diversification into power solutions and after‑market services—that can rebound quickly, supporting a bullish growth narrative.

Margin Evolution

Gross margin of 25.3% reflects a solid contribution from high‑margin engine and component sales, but it is modest compared to peers in the industrial equipment space (often >30%), indicating room for pricing improvement.
Operating margin of 11.9% shows that SG&A and R&D consume roughly half of gross profit, yet the margin remains stable, suggesting effective cost control amid fluctuating sales volumes.
Net margin of 8.4% and free cash flow conversion of 7.1% of revenue indicate that after interest, taxes, and capital expenditures, cash generation is modest, potentially limiting reinvestment capacity.
R&D spend of 4.1% of revenue is funded largely from operating cash flow, but as the company pivots toward electrified powertrains, the cost base may rise, pressuring margins unless offset by higher pricing or volume.

Watch Out

The net margin of 8.4% translates to roughly $2.8 B of profit on $33.7 B of sales; a further 0.5‑percentage‑point decline would shave $170 M off earnings, and given the recent revenue dip, any sustained margin erosion could impair cash flow and dividend sustainability.

Revenue, Earnings & Margin History

Cummins Inc. (CMI) — 11-Year Financial History

P&L Breakdown & Cost Structure

Growth Summary (CAGR)

📈 Revenue

3Y

+6.2%

5Y

+11.2%

💰 EPS

3Y

+10.7%

5Y

+11.3%

Revenue slipped 1.3% YoY to $33.7 B, indicating short‑term demand weakness in key power‑train segments, but the 3‑year CAGR of 6.2% shows the business has historically expanded at a healthy pace, suggesting the dip may be cyclical.
EPS of $20.50 demonstrates strong profitability per share, reinforcing Cummins’ ability to generate earnings even when top‑line growth stalls.
R&D intensity at 4.1% of revenue remains above the industry median (~3%), underscoring a commitment to product innovation that can sustain long‑term growth and protect market share in electrification trends.
The absence of stock‑based compensation (0% of revenue) improves earnings quality, as net income is less diluted by equity‑based awards, making cash‑based metrics more reliable for valuation.

Profitability & Return on Capital

Cummins Inc. (CMI) — DuPont & Efficiency

DuPont Decomposition (2025)

23.0%

ROE

=

8.4%

Net Margin

×

0.99x

Asset Turnover

×

2.8x

Eq. Multiplier

Operating margin rose from 7.3% to 8.4%, a 15% relative increase, reflecting higher pricing power and a favorable mix toward high‑margin power generation and aftermarket services.
Asset turnover fell from 1.26 to 0.99, indicating that sales growth is not keeping pace with the expansion of the asset base, which tempers the upside from margin expansion.
The equity multiplier climbed from 2.04 to 2.75, showing that Cummins is leveraging its balance sheet more aggressively; the additional leverage amplifies ROE but also raises financial risk.
Combined, the margin boost (+1.1ppt) and leverage increase (+0.61) more than offset the asset turnover decline, driving ROE up from 18.9% to 23.0% – a 22% improvement year‑over‑year.

Highlight

The most striking profitability signal is the 1.1‑percentage‑point lift in operating margin, which alone would lift ROE by roughly 4.5 points; this demonstrates that Cummins' strategic shift toward higher‑margin segments is materially enhancing shareholder returns.

Profitability & Efficiency History

Year	ROE%	Margin%	Turnover	Leverage	ROIC%	ROCE%	ROA%
2025	23.0	8.4	0.99	2.75	20.8	16.4	8.4
2024	38.4	11.6	1.08	3.07	24.8	18.5	12.5
2023	8.3	2.2	1.06	3.62	12.5	9.2	2.3
2022	24.0	7.7	0.93	3.38	21.6	15.5	7.1
2021	25.1	8.9	1.01	2.80	22.9	16.3	9.0
2020	22.2	9.0	0.88	2.81	18.8	13.9	7.9
2019	30.1	9.6	1.19	2.63	26.6	20.0	11.5
2018	29.1	9.0	1.25	2.59	29.1	22.0	11.2
2017	13.8	4.9	1.13	2.49	25.3	18.8	5.5
2016	20.3	8.0	1.17	2.18	23.5	17.6	9.3
2015	18.9	7.3	1.26	2.04	23.6	18.2	9.2

ROIC stands at 20.8%, well above the company’s weighted‑average cost of capital (≈7‑8%), indicating that Cummins is generating strong value on each dollar of invested capital.
The cash conversion cycle of 92 days is modest for a capital‑intensive industrial firm, suggesting effective working‑capital management but also leaving room for improvement relative to peers with sub‑70‑day cycles.
Despite a high ROIC, the declining asset turnover (from 1.26 to 0.99) signals that new investments are not translating into proportional sales growth, which could erode future capital efficiency.
Leverage‑driven ROE gains are supported by a stable capital structure; however, the rising equity multiplier implies that a larger share of earnings is financed by debt, which could pressure cash flow if operating performance falters.

Watch Out

The 23% drop in asset turnover (from 1.26 to 0.99) translates to roughly $0.27 of sales lost per $1 of assets, a drag that could lower future ROIC by 1‑2 points if not offset by further margin gains or asset rationalization.

Profitability & Return on Capital

Cummins Inc. (CMI) — ROIC & Cash Conversion

Return on Invested Capital

Current20.8%

Mean22.7%

Min12.5%

Max29.1%

Range16.6pp

Cash Conversion Cycle

Current92d

Mean83d

Min77d

Max92d

ROIC stands at 20.8%, well above the company’s weighted‑average cost of capital (≈7‑8%), indicating that Cummins is generating strong value on each dollar of invested capital.
The cash conversion cycle of 92 days is modest for a capital‑intensive industrial firm, suggesting effective working‑capital management but also leaving room for improvement relative to peers with sub‑70‑day cycles.
Despite a high ROIC, the declining asset turnover (from 1.26 to 0.99) signals that new investments are not translating into proportional sales growth, which could erode future capital efficiency.
Leverage‑driven ROE gains are supported by a stable capital structure; however, the rising equity multiplier implies that a larger share of earnings is financed by debt, which could pressure cash flow if operating performance falters.

Profitability & Return on Capital

Cummins Inc. (CMI) — Asset Turnover Decomposition

Asset Turnover in Days (2025)

84d

Inventory Days

+

63d

Receivables Days

+

81d

Fixed Asset Days

≈

368d

Total Asset Days

(0.99x turn)

Cash Conversion Cycle (2025)

84d

Inventory Days

+

63d

Receivables Days

−

55d

Payables Days

=

92d

CCC

Turnover & Days History

Year	Total Asset Days	Inventory Days	Receivables Days	Fixed Asset Days	Payables Days	Cash Conversion Cycle
2025	368	84	63	81	55	92
2024	338	82	55	74	56	81
2023	343	80	60	72	60	80
2022	394	96	68	72	73	91
2021	360	87	61	67	60	87
2020	417	84	70	78	69	85
2019	306	72	57	73	53	77
2018	293	76	59	63	57	78
2017	323	75	65	70	61	79
2016	313	75	63	79	52	86
2015	289	70	54	72	44	80

Operating margin rose from 7.3% to 8.4%, a 15% relative increase, reflecting higher pricing power and a favorable mix toward high‑margin power generation and aftermarket services.
Asset turnover fell from 1.26 to 0.99, indicating that sales growth is not keeping pace with the expansion of the asset base, which tempers the upside from margin expansion.
The equity multiplier climbed from 2.04 to 2.75, showing that Cummins is leveraging its balance sheet more aggressively; the additional leverage amplifies ROE but also raises financial risk.
Combined, the margin boost (+1.1ppt) and leverage increase (+0.61) more than offset the asset turnover decline, driving ROE up from 18.9% to 23.0% – a 22% improvement year‑over‑year.

Balance Sheet & Cash Flow Health

Cummins Inc. (CMI) — Balance Sheet

Balance Sheet Items ($M)

Year	Total Assets	Total Liabilities	Total Equity	Total Debt	Net Debt	Cash	Current Assets	Current Liabilities
2025	$33992M	$20584M	$12349M	$8114M	$5269M	$2845M	$16925M	$9610M
2024	$31540M	$20232M	$10271M	$7598M	$5927M	$1671M	$14752M	$11234M
2023	$32005M	$22101M	$8850M	$7208M	$5029M	$2179M	$15198M	$12903M
2022	$30299M	$20074M	$8975M	$8355M	$6254M	$2101M	$14451M	$11421M
2021	$23710M	$14309M	$8474M	$4613M	$2021M	$2592M	$12309M	$7084M
2020	$22624M	$13635M	$8062M	$4617M	$1216M	$3401M	$11897M	$6335M
2019	$19737M	$11272M	$7507M	$2868M	$1739M	$1129M	$9387M	$6260M
2018	$19062M	$10803M	$7348M	$2476M	$1173M	$1303M	$9818M	$6384M
2017	$18075M	$9911M	$7259M	$2006M	$637M	$1369M	$8928M	$5677M
2016	$15011M	$7837M	$6875M	$1821M	$701M	$1120M	$7707M	$4325M
2015	$15134M	$7384M	$7406M	$1600M	$-111M	$1711M	$7947M	$3803M

Liquidity & Solvency

7/9

Piotroski F-Score

Strong

4.6

Altman Z-Score

Safe

The current ratio of 1.76 exceeds the 1.5 benchmark, indicating Cummins can comfortably meet its short‑term liabilities and reducing the likelihood of a working‑capital squeeze.
A debt‑to‑equity ratio of 0.66 reflects a conservative capital structure, meaning equity financing dominates and the company can absorb additional debt for growth without jeopardizing solvency.
Interest coverage at 12.14x shows earnings are more than twelve times the interest expense, providing a wide safety margin against rising rates or earnings volatility.
Free cash flow conversion of 7.09% is below the 10% strong threshold, suggesting a modest portion of earnings translates into cash and highlighting potential constraints on dividend or buyback capacity if cash generation falters.
Operating cash flow to net income of 1.27x confirms that earnings are cash‑backed, limiting earnings‑quality concerns and supporting the sustainability of reported profit.

Balance Sheet & Cash Flow Health

Cummins Inc. (CMI) — Cash Flow

Cash Flow Statement ($M)

Year	Operating CF	Investing CF	Financing CF	CapEx	Free Cash Flow	Buybacks	Dividends
2025	$3621M	$-1841M	$-662M	$-1235M	$2386M		$-1055M
2024	$1487M	$-1782M	$-173M	$-1208M	$279M		$-969M
2023	$3966M	$-1643M	$-2177M	$-1213M	$2753M		$-921M
2022	$1962M	$-4172M	$1669M	$-916M	$1046M	$-374M	$-855M
2021	$2256M	$-873M	$-2227M	$-786M	$1470M	$-1402M	$-809M
2020	$2722M	$-719M	$280M	$-575M	$2147M	$-641M	$-782M
2019	$3181M	$-1150M	$-2095M	$-775M	$2406M	$-1271M	$-761M
2018	$2378M	$-974M	$-1400M	$-784M	$1594M	$-1140M	$-718M
2017	$2277M	$-1052M	$-1074M	$-587M	$1690M	$-451M	$-701M
2016	$1935M	$-917M	$-1413M	$-594M	$1341M	$-778M	$-676M
2015	$2059M	$-918M	$-1644M	$-799M	$1260M	$-900M	$-622M

Cash Flow Trends

A Piotroski F‑score of 7/9 signals strong underlying fundamentals, with positive signals across profitability, leverage, and operating efficiency, suggesting financial resilience.
The Altman Z‑score of 4.62 sits well above the 2.99 distress threshold, indicating a low probability of bankruptcy and reinforcing the safety of Cummins' balance sheet.
The OCF/NI ratio of 1.27x, together with a high Piotroski score, underscores high earnings quality, meaning reported profits are largely backed by cash and reducing the risk of earnings manipulation.

Balance Sheet & Cash Flow Health

Cummins Inc. (CMI) — FCF & Capital Returns

Free Cash Flow Statistics

Buyback & Dividend Trends

A Piotroski F‑score of 7/9 signals strong underlying fundamentals, with positive signals across profitability, leverage, and operating efficiency, suggesting financial resilience.
The Altman Z‑score of 4.62 sits well above the 2.99 distress threshold, indicating a low probability of bankruptcy and reinforcing the safety of Cummins' balance sheet.
The OCF/NI ratio of 1.27x, together with a high Piotroski score, underscores high earnings quality, meaning reported profits are largely backed by cash and reducing the risk of earnings manipulation.

Executive Insights & Key Takeaways

Key Takeaways

1Y Return

▲ +120.8%

vs S&P +88.6pp

Revenue 3Y CAGR

▲ +6.2%

5Y: +11.2%

Net Margin

8.4%

▲ 3Y ago: 7.7%

ROIC

20.8%

▼ 3Y ago: 21.6%

FCF Margin

7.1%

▲ 3Y ago: 3.7%

Piotroski

7/9

Strong

Cummins Inc. delivered a spectacular 120.8% total return over the past year, outpacing the S&P 500 by 88.6% and generating a Sharpe ratio of 3.07, indicating superior risk‑adjusted performance. Underpinning this rally are robust profitability metrics—ROE of 23.0% and ROIC of 20.8%—that reflect durable competitive advantages and efficient capital deployment. The company’s balance sheet remains resilient, with a current ratio of 1.76, debt‑to‑equity of 0.66, and an interest‑coverage ratio of 12.1x, providing ample headroom for reinvestment or dividend support. Cash conversion is strong, as evidenced by a free‑cash‑flow margin of 7.1% and operating cash flow that exceeds net income by 27.4%, reinforcing financial flexibility. Together, these fundamentals justify the high institutional ownership of 85.8% and support a bullish investment thesis despite a modest 1‑year revenue dip.

✅ Strengths

Total return of 120.8% YoY and a 1‑year excess return of +88.6% versus the S&P 500 demonstrate that Cummins has outperformed the broader market while maintaining a low max drawdown of 15.5%, highlighting strong upside potential with limited downside risk.
ROE of 23.0% and ROIC of 20.8% far exceed the industry average, indicating that the firm generates high returns on both equity and invested capital, which sustains earnings growth and justifies premium valuation.
Free‑cash‑flow margin of 7.1% and OCF/NI ratio of 1.27 show that earnings are backed by solid cash generation, enabling debt repayment, dividend growth, and strategic acquisitions without straining liquidity.
Leverage is modest (D/E 0.66) and interest coverage stands at 12.1x, providing a safety buffer against rising rates and ensuring the company can meet obligations while pursuing growth initiatives.
High institutional ownership at 85.8% signals confidence from sophisticated investors and aligns shareholder interests with long‑term value creation.

⚠️ Risks

Revenue contracted 1.27% YoY to $33.7 B, and the three‑year CAGR of 6.2% suggests a deceleration that could pressure earnings if demand in key segments softens.
A gross margin of only 25.3% combined with an operating margin of 11.9% leaves limited pricing power; any further cost inflation or competitive discounting could erode profitability.
The cash conversion cycle of 92 days ties up capital in inventory and receivables, potentially limiting free cash flow during periods of slower working‑capital turnover.
Beta of 1.14 and a 37.9% volatility level expose the stock to broader market swings, meaning a market correction could disproportionately affect the share price despite strong fundamentals.
While institutional ownership is a strength, it also creates concentration risk; large position adjustments by a few major holders could trigger significant price volatility.

CMI

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Report written 2026-04-15 • Finexus