Cummins Inc.CMINYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $582.01 per share(market-calibrated)

+0.3%

Upside to Fair Value

Current

$580.37

Pure Model

$574.89

Fair Value

$582.01

Bull Case

$695.65

Bear Case

$463.01

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

4.37%

Calibrated Growth

2.57%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $574.89.

What's Driving This Ratingfor CMI

✓

CapEx already efficient

CapEx at 3.18% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

→

Moderate revenue growth

Analyst consensus projects 5.89% revenue growth, fading to 2.25% by Year 10. Revenue reaches $50.1B (vs $33.7B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $447.47/share (15.4x terminal FCF) while exit multiple gives $702.31/share (30.2x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $580.37, the market implies 4.37% perpetual growth — 212bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

→

Moderate cash flow conversion

Year 10 FCF/EBITDA conversion is 59.65% — acceptable but leaves room for improvement. High reinvestment needs consume a meaningful portion of operating cash flow.

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.12

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.54%

Cost of Debt

Pre-tax Cost of Debt3.41%

Tax Rate25.38%

After-tax Cost of Debt2.55%

Equity Weight (E/V)90.79%

Debt Weight (D/V)9.21%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (90.79% × 9.54%) + (9.21% × 2.55%)

= 8.89%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$35.7B	$41.7B	$44.8B	$46.9B	$50.1B
EBIT	$5.7B	$6.6B	$7.1B	$7.4B	$8.0B
Tax	$1.4B	$1.7B	$1.8B	$1.9B	$2.0B
NOPAT	$4.2B	$4.9B	$5.3B	$5.6B	$5.9B
+ Depreciation	$983M	$1.2B	$1.2B	$1.3B	$1.4B
- Capex	$1.1B	$1.3B	$1.4B	$1.5B	$1.6B
- Δ NWC	$276M	$426M	$137M	$143M	$153M
Free Cash Flow	$3.8B	$4.3B	$5.0B	$5.2B	$5.6B
Discount Factor	0.918	0.774	0.653	0.551	0.427
Present Value	$3.5B	$3.4B	$3.3B	$2.9B	$2.4B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.6B

Terminal Growth Rate2.25%

WACC8.89%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$85.8B

PV of Terminal Value$36.6B

Exit Multiple Method

Year 10 EBITDA$9.3B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$168.2B

PV of Terminal Value$71.7B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$30.4B

PV of Terminal Value$36.6B

Enterprise Value$67.0B

(-) Net Debt$5.3B

Equity Value$61.7B

Shares Outstanding138M

Price per Share$447.47

Exit Multiple Method

PV of Projected FCFs$30.4B

PV of Terminal Value$71.7B

Enterprise Value$102.1B

(-) Net Debt$5.3B

Equity Value$96.8B

Shares Outstanding138M

Price per Share$702.31

Pure Model Fair Value

$574.89

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
6.89%	$703.80	$722.92	$746.16	$775.00	$811.77
7.89%	$622.25	$634.75	$649.47	$667.05	$688.41
8.89%	$556.40	$565.00	$574.89	$586.40	$599.94
9.89%	$501.56	$507.70	$514.65	$522.57	$531.68
10.89%	$454.89	$459.41	$464.45	$470.11	$476.52

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$463.01

-20.2% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.40

Base Case

$574.89

-0.9% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.12

Bull Case

$695.65

19.9% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.95

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth5.89%

Year 3 Revenue Growth7.91%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin15.88%

Tax Rate25.38%

Historical Capex / Rev3.18%

NWC / Revenue13.91%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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