Cummins
Powering critical infrastructure through cycles, with disciplined transition optionality
Cummins is a diversified power technology company with entrenched positions in heavy-duty engines, components, a vast global service network, and increasingly attractive exposure to mission-critical backup power for data centers.
Recent quarters show resilience as Distribution and Power Systems offset a cyclical downturn in North American on-highway trucks, with strong EBITDA lift tied to backup power demand. The company also recorded non-cash charges and began a strategic review in its hydrogen electrolyzer business, signaling a pragmatic approach to the energy transition.
Regulatory overhang from the diesel emissions matter has largely cleared, with a landmark settlement finalized and payments completed in 2024. Liquidity remains solid, supported by A/A2 credit ratings, ample cash and marketable securities, and improving free cash flow.
Dividends were raised in October 2025. On our preferred cash metrics, TTM free cash flow is around 2.28 billion, yielding roughly 16.5 per share on about 138 million shares outstanding.
We think a fair multiple for a high-quality but cyclical industrial is about 13.5x FCF, implying a fair value in the low- to mid-220s per share, with heightened interest below the high-100s if macro or truck-cycle pressure reappears.
Does Cummins have a strong competitive moat?
Cummins has several durable advantages. Brand trust and a century of field performance support pricing and specification wins with OEMs and end users across engine classes and power systems.
The company’s global service network of roughly 650 distributor locations and over 19,000 certified dealers creates switching frictions for fleets and operators that rely on uptime, parts availability, diagnostics, and warranty support. These support tangible and intangible switching costs after the initial engine selection.
Scale purchasing and shared technology across Engine, Components, and Power Systems create cost advantages and product breadth. In data center backup power, Cummins benefits from efficient scale and a reputation for reliability, though competition (notably Caterpillar) remains intense.
Risks to moat durability include OEM vertical integration, electrification potentially reducing demand for diesel over a long horizon, and regulatory shifts. Overall: intangible assets 70; switching costs 75; cost advantage 70; efficient scale 72; network effects 20. Weighted by importance, we score the moat at 74.
Does Cummins have pricing power in its industry?
Recent results show Cummins passing through price and benefiting from mix, with Distribution and Power Systems margin expansion even as truck markets softened. Gross margin in 2025 YTD improved versus 2024, aided by strong power generation demand and pricing on updated light-duty products.
Aftermarket parts and service contribute steadier, higher-margin revenue. Still, engines and components remain competitive and cyclical, and large OEMs can exert negotiating leverage. Cummins’ data center power exposure likely has above-average pricing stickiness due to mission-critical uptime, but this is balanced against supplier competition.
On balance we see moderate pricing power that can hold margins through cycles but is not monopolistic.
How predictable is Cummins's business?
Revenue is diversified across engines, components, distribution, and power generation, with recurring aftermarket service providing ballast. However, the core on-highway business is cyclical and sensitive to freight and capex cycles, and management withdrew its 2025 forecast in May due to tariff uncertainty.
Near term predictability is better in power generation, especially data centers, which helped stabilize earnings in 2025 despite truck softness. Longer term, electrification and emissions policy introduce forecast error, though Cummins’ multi-fuel strategy lowers single-path risk.
Overall we view growth as moderately predictable, improving when services and power generation are larger mix components.
Is Cummins financially strong?
Liquidity and leverage are solid. At Q3 2025 Cummins held 2.566 billion cash and 593 million marketable securities against 7.614 billion total debt, plus undrawn revolvers, supporting ample flexibility. Credit ratings stand at A (S&P) and A2 (Moody’s) with stable outlooks.
Pension plans were overfunded at year-end 2024. Despite the 2024 settlement cash payments, cash generation recovered: nine-month 2025 CFO was 2.087 billion with only 691 million capex, and Q4 2024 FCF was roughly 0.88 billion, placing TTM FCF near 2.28 billion.
The clean-up of regulatory liabilities and investment-grade access position Cummins to weather downturns and fund reinvestment.
How effective is Cummins's capital allocation strategy?
The company has generally allocated capital prudently: a long record of dividends, including a 10% increase to 2.00 dollars per share in October 2025; a tax-efficient split-off of Atmus that reduced share count by about 5.6 million; and no repurchases in the first nine months of 2025 as management prioritized balance sheet strength and investments.
Capex guidance of roughly 1.2 to 1.3 billion in 2025 targets growth areas, with strong returns visible in power generation. Accelera impairments and a strategic review of electrolyzers suggest discipline in scaling emerging technologies.
Risks include customer concentration, potential future contributions to the Amplify battery JV, and the inherent cyclicality of core end markets.
Does Cummins have high-quality management?
Chair and CEO Jennifer Rumsey is a technically strong, long-tenured leader who advanced from CTO to CEO and then Chair, and has emphasized Destination Zero while staying grounded in returns.
Her tenure has included decisive steps: closing the Atmus separation, addressing the emissions matter, managing through a truck downturn, and leaning into data center power. The recent Accelera impairment and strategic review appear to reflect realism about policy-driven hydrogen timing.
Cultural and governance signaling are positive, and ratings agencies maintain stable outlooks. We see management as capable, focused on returns, and appropriately cautious on nascent technologies.
Is Cummins a quality company?
Cummins is a good quality company with a quality score of 76/100
- Mission-critical power exposure is a structural tailwind: data center backup and power generation drove double-digit sales and margin expansion in Distribution and Power Systems, improving mix and earnings despite truck-cycle weakness.
- Regulatory risk reset: the 2013–2019 Ram diesel emissions case is settled with a 1.675 billion civil penalty and required mitigation/recall; Cummins paid 1.9 billion in 2024, reducing uncertainty.
- Balance sheet and ratings support resilience: A/A2 long-term ratings, 2.566 billion cash plus 593 million marketable securities at Q3 2025, and total debt of 7.6 billion imply manageable net leverage through cycles.
- Customer concentration and vertical integration remain risks: PACCAR accounted for 16% of 2024 sales; several large OEMs also make their own engines.
- Energy transition optionality with discipline: non-cash Accelera charges and a strategic review of electrolyzers indicate capital is being reallocated toward nearer-term, higher-return areas while maintaining long-term decarbonization efforts.
What is the fair value of Cummins stock?
Is Cummins a good investment at $562?
The following analysis is provided for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. The opinions expressed are based on publicly available information and historical data. Beanvest and its contributors may hold positions in the securities mentioned. Investors should conduct their own due diligence or consult a licensed financial advisor before making any investment decision.