To The Moon

$Cummins(CMI)$

Cummins Stock is manufactures engines used in construction and heavy machinery, making it a key player in the industrial sector. It’s arguably one of the strongest businesses in the U.S. industrial economy. I’ve owned it in the past and made a profit, and as I revisited it, I was reminded of why I like the business.

Looking at historical earnings through , my usual standard for cyclical stocks is a 50% or greater earnings decline. Cummins' worst recorded decline was 39%, which is below that threshold. However, I still consider it cyclical for a few reasons. First, it operates in a cyclical industry. Second, when I first started analyzing cyclical stocks, Cummins was always part of my coverage, so I’ve long categorized it that way—even before setting my current parameters.

That said, its earnings have shown some resilience. The declines haven't been as severe, and the company didn’t experience a sharp earnings spike leading up to the Great Recession—growth was just 6% and 10% in the years before the downturn. This contrasts with more volatile companies that experience rapid expansion followed by steep drops. There was slightly more cyclicality heading into COVID-19, but overall, the company's earnings patterns have become less volatile over time.

Given this, I’ll still classify Cummins as a deep cyclical stock but adjust my usual parameters slightly since it's a higher-quality business. Additionally, its long-standing, stable dividend—currently yielding around 2% even near all-time highs—suggests that many of its investors are long-term, buy-and-hold dividend investors. This could make the stock less prone to major sell-offs, as it’s also included in ETFs that tend to be held for longer periods.

This reduces the stock’s cyclicality, but looking back at past downturns, it has still seen major declines. During the Great Recession, it dropped over 65%, with a peak drawdown around 70%. In the 2015 industrial recession, it fell about 50%, which is typical for a cyclical business.

Earning Overview

In the fourth quarter of 2024, Cummins Inc. (CMI) reported earnings per share (EPS) of $5.16, surpassing the Zacks Consensus Estimate of $4.68 by 10.26%. This marks an increase from the $4.14 EPS reported in the same quarter the previous year.

The company's quarterly revenue was $8.45 billion, slightly below the $8.54 billion reported in Q4 2023, reflecting a 1% decrease. This decline was primarily due to reduced North American heavy-duty and pickup truck volumes, as well as the separation of Atmus Filtration Technologies.

Despite these challenges, Cummins' Power Systems segment achieved a record full-year EBITDA of 18.4% of sales, up from 14.7% in 2023, driven by strong demand in power generation, particularly for data centers. The company is investing $200 million to expand manufacturing capacity across the U.S., England, and India to meet this growing demand.

Fundamental

Revenue Growth: In the fourth quarter of 2024, Cummins reported revenues of $8.4 billion, a 1% decrease from the same period in 2023. For the full year 2024, the company achieved revenues of $33.2 billion, a 2% increase compared to 2023.

Earnings: The company's Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for the full year 2024 was $6.3 billion, representing 18.6% of sales, an increase from $3.0 billion, or 8.9% of sales, in the previous year.

Cash Flow

In the fourth quarter of 2024, Cummins Inc. reported revenues of $8.4 billion, a 1% decrease from the same period in 2023. The company's Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for the full year 2024 was $6.3 billion, representing 18.6% of sales, an increase from $3.0 billion, or 8.9% of sales, in the previous year.

While specific operating cash flow figures for Q4 2024 were not disclosed, Cummins has consistently emphasized its commitment to generating strong operating cash flow and returning 50% of it to shareholders. In 2023, the company reported a record operating cash flow of $4.0 billion, doubling from $2.0 billion in 2022.

For 2025, Cummins projects revenues to range from a 2% decrease to a 3% increase, with EBITDA expected between 16.2% and 17.2% of sales. The company plans to maintain its focus on generating robust operating cash flow and delivering returns to shareholders. As of February 26, 2025, Cummins' stock is trading at $361.05.

Outlook:

For 2025, Cummins projects revenues to range from a 2% decrease to a 3% increase, with EBITDA expected between 16.2% and 17.2% of sales. The company plans to maintain its focus on generating robust operating cash flow and delivering returns to shareholders.

Market Sentiment

positive outlook on Cummins, with an average 12-month price target of $393.54, suggesting potential upside from the current stock price. The company's profitability and solvency scores are 55/100 and 56/100, respectively, indicating solid financial health.

Risk And Challenges

Right now, the stock is at an all-time high, so it’s definitely not at a cyclical low. I wouldn’t buy at this price, but I’ll share my target buy prices shortly. If I owned it, my decision would depend on my portfolio—if I had few cyclicals and plenty of cash, I might just hold. While a drawdown is possible, the timing and depth are uncertain.

Earnings growth has been steady rather than extreme—rising from $15 to $21 over five years (about 25-30% growth), which isn’t a huge surge. Even so, I’m applying my cyclical strategy, focusing on historical price declines.

Looking at past drawdowns:

• In 2021, during a market-driven decline, it fell 65%.

• The Great Recession saw a 70-71% drop, deeper than the broader market.

• In 2020, it declined over 45% during the crash.

• In 2015’s industrial recession, it fell about 50%.

Generally, without a broad recession, the stock tends to decline 45-50%, but during major downturns, it can fall as much as 70%.

Valuation

If there’s a recession, we typically see a 65-70% drawdown, which is what I use as my guide. Right now, I don’t think the stock is particularly expensive, but if we get a mid-cycle decline or a crash like we’ve seen in the past, buying after a 45% drop makes sense. That level would have provided great entry points during the 2020 crash and the 2014-2016 industrial downturn. While it wouldn’t have been quite enough for some past declines, the opportunities that did meet this threshold led to at least a double within a couple of years—sometimes much faster.

That said, buying at a 65% drawdown would have yielded even greater returns, similar to what happened in past declines not shown on the Fast Graph. Historically, the market tends to follow these two patterns: mid-cycle declines around 45% and deeper recessions around 65-70%.

Conclusion

Currently, the stock hit a new all-time high at $384.39, which adjusts my buy levels. A 45% decline would put the first buy level around $211.41. If the stock moves higher, that target will also shift. The second buy level—65% off the high—would be significantly lower, though some might argue it’s unrealistic.

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Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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