In the Driver’s Seat

Indiana-based engine maker Cummins Inc. (NYSE: CMI) is in the driver’s seat of the American manufacturing renaissance.

Already a worldwide leader in the industrial diesel engine market, Cummins’ supply chains and distribution channels are uniquely positioned to capitalize on the growing trend of natural gas power generation.

As demands for alternrnative engines ramp up, I’m expecting Cummins to emerge as the clear winner. The profitable swell hasn’t hit Cummins’ quarterly numbers just yet, but a recent presentation to analysts shows much promise. And the company’s shares are up more than 9% since the beginning of August, when I called Cummins a: “Must-Have Natural-Gas Play.”

At the time, I failed to mention that Cummins also pays a nice dividend (currently 1.86% per year) that has steadily grown by more than 400% since 2007. Take a look…

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In its September 17 Analyst Day presentation, Cummins outlined its latest five-year plan, including specifics on how it expects to achieve:

  • Revenue growth 2x to 3x higher than global GDP growth
  • Returnrn on equity of 25%
  • Profit margins (EBIT) of 18% (from 11%, currently)

Based on Cummins’ projections, Wells Fargo estimates that we’ll see earnrnings per share (EPS) as high as $13 by 2015.

$13 EPS… multiplied by Cummins’ current P/E ratio of 17.9… would price the stock at $233/share.

That’s very close to the $222/share projection I made in early August. And with current prices around $133, we still have between 70% and 80% of profit potential ahead of us.

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.