DCF Studio

    CMI · NYQ · Industrials

    Cummins Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 212.63

    Market price

    USD 532.23

    Implied upside

    -60.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 212.63-60.0%
    Exit multiple
    USD 446.15-16.2%
    Market price
    USD 532.23

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn4bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 35.8bnUSD 38.0bnUSD 40.4bnUSD 42.9bnUSD 45.6bn+6.2%
    EBITUSD 3.1bnUSD 3.3bnUSD 3.5bnUSD 3.7bnUSD 3.9bn+6.2%
    NOPATUSD 2.4bnUSD 2.6bnUSD 2.7bnUSD 2.9bnUSD 3.1bn+6.2%
    Add depreciation & amortisationUSD 1.1bnUSD 1.2bnUSD 1.2bnUSD 1.3bnUSD 1.4bn+6.2%
    Less capital expenditureUSD -1.3bnUSD -1.3bnUSD -1.4bnUSD -1.5bnUSD -1.6bn+6.2%
    Less increase in working capitalUSD 848.8mUSD 901.8mUSD 958.2mUSD 1.0bnUSD 1.1bn-6.2%
    Free cashflow to firmUSD 3.1bnUSD 3.3bnUSD 3.5bnUSD 3.7bnUSD 4.0bn+6.2%
    Discount factor0.95090.85980.77740.70300.6356-
    Present valueUSD 3.0bnUSD 2.8bnUSD 2.7bnUSD 2.6bnUSD 2.5bn-3.9%
    Present Value Of The ForecastUSD 13.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.151Reported 1.226, pulled toward 1.0 (Blume)
    Cost of equity11.33%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 73.3bn90.0% of capital
    Total debtUSD 8.1bn10.0% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC10.59%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 212.63

    60% of EV

    Forecast FCFF, final year
    USD 4.0bn
    Capex at depreciation, working capital in reinvestment
    USD 3.1bn
    Less reinvestment at g/ROIC (18.2% of NOPAT)
    USD -562.5m
    Capitalised
    USD 2.5bn
    ROIC (reported)
    13.7%
    Terminal value, undiscounted
    USD 32.0bn
    Terminal value, discounted
    USD 20.3bn
    Enterprise value
    USD 34.0bn
    Less net debt
    USD 4.5bn
    Equity value
    USD 29.5bn

    Exit at 15.6x EBITDA

    Value per shareUSD 446.15

    79% of EV

    Terminal value, undiscounted
    USD 82.9bn
    Terminal value, discounted
    USD 52.7bn
    Enterprise value
    USD 66.4bn
    Less net debt
    USD 4.5bn
    Equity value
    USD 61.9bn

    Spread between methods: 71%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.59%266.33273.55281.87291.58303.08
    9.59%232.92237.41242.46248.20254.79
    10.59%206.74209.54212.63216.05219.88
    11.59%185.66187.37189.21191.22193.40
    12.59%168.29169.28170.32171.43172.60

    Outlined: this model. Green text: above today's price of 532.23. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year6.2%23.6%+17.3pp
    EBIT margin8.6%20.8%+12.3pp
    Discount rate10.6%5.7%-4.9pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.