CUMMINS INC (CMI): what the price requires

At today's price, CUMMINS INC (CMI) is priced for today's economics sustained for ~5.1 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-14 · Source: https://boothcheck.com/report/CMI

Headline

FieldValue
TickerCMI
CompanyCUMMINS INC
Current price$663.18/sh
CompositionEngine 24% / Components 26% / Distribution 37% / Power Systems 12% / Accelera 1%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed7.6%
Operating margin today12.4%
Margin compression implied-4.8pp
Must persist for5.1y
Multiple paid23x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 9.8% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~1.7 years.

How unusual the bet is: elevated

ReferenceValue
vs own history+0.40σ
cohort percentile (of 225 peers)54
sustained it ~5.1 years at this level30%
implied end-window share0%

Valuation X-Ray

Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset3.06x5expensive
Earnings3.30x4expensive
Relative1.45x3expensive
Growth1.55x3expensive

Families that call it expensive: Asset, Earnings, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.2%); the inversion above states its own rate.

Per-Model Detail (n=15)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$234.092.83xyesFCF base $2.7B, growth 0% (input: historical growth), terminal g 0.5%, WACC 9.2%, 5yr projection
DCF Exit MultipleGrowth$541.341.23xyesExit EV/EBITDA: 19.8x / 21.8x / 23.8x (bear / base = today's held flat / bull), 5yr
Relative ValuationRelative$456.131.45xyesP/E 22.51x (blended: static sector reference 18x + trailing (TTM) 33x), scenarios: 19.0x / 22.5x / 26.0x (bear / base = reference held flat / bull), EV/EBITDA 14.93x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$217.073.06xyesBV/sh $88.98, ROE (TTM) 22.6%, ke 9.3%
Two-Stage Excess ReturnAsset$337.741.96xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$427.391.55xyesRev $33.9B, growth 0% (input: historical growth; tapered), Terminal P/S: 2.3x / 2.7x / 3.1x (bear / base = today's held flat / bull, cap 8x)
Growth-Adjusted P/ERelative——no—
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$194.563.41xyesNormalized EBIT (5y avg op income, one-time charges added back) $3.13B × (1−27%) / WACC 9.2% → EPV (no growth)
Residual IncomeAsset$314.262.11xyesBV $88.98 + 5yr PV of (ROE (TTM) 22.6% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham NumberAsset$196.323.38xyes√(22.5 × EPS $19.25 × BVPS $88.98) — Graham's conservative floor
EV/EBITDA RelativeRelative$372.791.78xyesEBITDA $4.12B × sector EV/EBITDA 12.0x
FCF YieldEarnings$224.462.95xyesFCF $2671.0M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings——no—
Ben Graham FormulaEarnings$130.105.10xyesEPS $19.25 × (8.5 + 2×-0.2%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$66.2110.02xyesBV $88.98 × (ROIC 6.9% / WACC 9.2%)
P/Sales SectorRelative$610.481.09xyesRevenue $33.89B × sector P/S 2.5x
PEG Fair ValueRelative——no—
Earnings YieldEarnings$208.113.19xyesEPS $19.25 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$4.2b
Net debt / NOPAT (after-tax)1.37x
Net debt / operating income (pre-tax)1.00x
Interest coverage12.9x
Share count CAGR (buyback)-0.8%
Burning cashno

Bullet Takeaways

Bull Case

The honest place to start the bull case is with the risk it has to clear, because Cummins is a cyclical industrial and its biggest end market has been weak. North American heavy- and medium-duty truck demand was soft in the first quarter, the kind of trough that historically pulls a diesel-engine maker's earnings down with it. The question is whether the data supports the fear or undercuts it, and here it undercuts it: total revenue still grew 3% to $8.4 billion, because a different engine of the business took over. Power Systems sales rose 19% to about $2 billion at a record EBITDA margin near 29.5%, driven by data-center backup-power demand, and Distribution grew 7% on power-generation and parts demand. The truck weakness that should have sunk the quarter was offset by the AI-power tailwind, which is the bull's central claim: Cummins has become a power-generation company with a truck business attached, not the other way around.

That reframe has real numbers behind it. The Power Systems and Distribution segments together are now the larger part of the company, and the gensets that data centers buy for backup power are exactly the high-margin, long-cycle products that smooth out the truck cycle's volatility. Management leaned into it, raising full-year 2026 revenue guidance to up 8% to 11% and lifting its EBITDA margin target, and pointing to a 2030 revenue goal of $50 billion. The returns on the franchise are strong, a trailing return on equity above 22% and free cash flow of roughly $2.7 billion, and the balance sheet is conservative: net debt at about one times operating income with interest covered more than ten times. This is a high-quality industrial funding its own transition.

The cyclical kicker is the EPA 2027 emissions rule. The tightening NOx standard for heavy-duty trucks is expected to trigger a pre-buy, fleets purchasing engines ahead of the costlier, more complex 2027-compliant powertrains, which would lift engine shipments into the second half of 2026 just as the truck cycle turns. Cummins, as the dominant independent engine maker, is positioned to capture that pre-buy, layering a cyclical recovery on top of the structural data-center growth. The bull case is the combination: a re-rated growth segment in power generation, a truck cycle bottoming with a regulatory catalyst, and a balance sheet strong enough to invest through both.

Bear Case

The balance sheet is sound, so the bear case is not about leverage; it is about what the leverage of expectations now rests on. Cummins carries net debt at only about one times operating income with interest covered more than ten times, a genuinely strong position. But that strength is the floor under a price that has run far ahead of it. No valuation family reaches today's level. The asset-based methods, the earnings-power methods, the peer-multiple methods, and even the forward-growth methods all land below the price, which means the market is paying for an outcome beyond what any standard frame supports. When a cyclical industrial trades where no method can justify it, the bet is that this time the cycle does not matter, and that is the most dangerous assumption an industrial investor can make.

The core of the company is still cyclical, whatever the data-center narrative suggests. Roughly half the business is engines and components tied to the truck and equipment cycle, and that cycle has been weak; the data-center surge is doing the heavy lifting precisely because the cyclical core is soft. Industrial demand of this kind is lumpy and revocable, the way Xylem describes its own backlog, that it is "subject to rescheduling and cancellation by customers". Data-center orders can be pushed or pulled the same way, and a hyperscaler capital-spending pause would hit the very segment the bull case leans on. The EPA pre-buy is real but double-edged: a pre-buy borrows demand from 2027, so a strong second half of 2026 sets up a weaker 2027 once the pull-forward unwinds.

The valuation leaves no room for the cycle to behave like a cycle. At roughly 25 times operating income, the price implies operating growth held near its self-funding ceiling for about six years, a persistence only about 27% of comparable companies have sustained, on a business whose revenue has been roughly flat year over year. The stock has nearly doubled in a year on the data-center power theme, which means a great deal of future success is already in the price. If truck demand recovers more slowly than the raised guidance assumes, if the data-center order rate cools, or if the pre-buy pulls demand forward and leaves an air pocket, the price has a long way to fall toward the levels every valuation method points to. The bear case is not that Cummins is a poor company; it is that an excellent cyclical company is priced as a secular growth story, and cyclicals that get priced that way tend to revert when the cycle reasserts itself.

Valuation

The valuation read for Cummins is unusually stark: no family of methods reaches the price. At roughly 25 times operating income, working the price backward shows it implying operating growth held near its self-funding ceiling for about six years, a pace within the company's recent delivery but a duration only about 27% of comparable companies have sustained. The label is elevated, above what the fundamentals comfortably support, and the method disagreement confirms it from every angle.

Walk the families and they all say the same thing. The asset-based methods, anchored on book value near $89 a share and a return on equity above 22%, land well below the price. The earnings-power methods, capitalizing the steady operating profit, land far below. The peer-multiple methods, even on a blended multiple above the industrial sector median, land below. And the growth-dependent cash-flow methods, which usually rescue a richly priced name, also fall short, because the historical revenue growth feeding them has been roughly flat. When asset value, earnings power, peer multiples, and forward growth all agree the price is rich, the price is not paying a durability premium on a proven growth engine; it is pricing an outcome, the data-center power story extending for years, that the standard methods cannot frame. That is the bet, stated cleanly.

Solvency is the one place the read is unambiguously positive, and it bounds the downside. Net debt at about one times operating income, interest coverage above ten times, and free cash flow of roughly $2.7 billion mean there is no financial risk under any plausible cycle; the company can invest through a downturn and keep returning capital, with a dividend and a slowly shrinking share count. But a strong balance sheet does not make an expensive stock cheap. The decisive variable is whether the Power Systems data-center demand and the EPA-driven truck pre-buy sustain the growth the price assumes. If they do, the premium is earned; if the cycle reasserts itself, the gap between the price and every method's estimate is the distance the stock can fall. The balance sheet says Cummins survives any cycle comfortably; the valuation says the equity is priced as if there is no cycle at all.

Catalysts

The dominant catalyst is the divergence between the truck cycle and data-center power. The first quarter showed it clearly: North American truck demand was weak, but Power Systems hit a record with sales up 19% to about $2 billion at a 29.5% EBITDA margin on data-center backup-power demand, and Distribution rose 7%, lifting total revenue 3% to $8.4 billion. Management raised full-year 2026 revenue guidance to up 8% to 11% and lifted its EBITDA margin target, citing strength in power generation and an earlier-than-expected truck recovery. The order trend in Power Systems is the single most important read on whether the data-center narrative holds.

The regulatory catalyst is the EPA 2027 emissions rule. The tighter heavy-duty NOx standard is expected to be finalized in the coming months, and a pre-buy of engines ahead of the costlier 2027-compliant powertrains would boost shipments into the second half of 2026. The catalyst cuts both ways over time, because a pre-buy pulls demand forward from 2027, so the timing and magnitude of the pull-forward matter for both years.

Analyst sentiment has chased the data-center theme upward. At least six brokerages raised their targets after the first quarter, with a street mean around $725 and a high of $850 from UBS tied to the AI-power demand wave, and several framed Cummins as a quiet data-center power play rather than a pure cyclical. The stock has nearly doubled over the past year on that reframe, so the swing factor is whether the next several quarters confirm the data-center order strength and the truck recovery, or whether either disappoints against guidance that now assumes both.

Peer Cohorts (Per Segment, With Filing Citations)

Engine (reported)

Components (reported)

Distribution (reported)

Power Systems (reported)

Accelera (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

Q1 2026 results · company FY2026 guidance and analyst day · company FY2026 guidance · industry reports and company commentary, 2026 · analyst notes, 2026

View the full interactive CMI report on boothcheck