Cummins Inc. (CMI): This Company Could Become One of Buffett’s Favorites (Part 7)

Reasonably priced

At $117 per share, Cummins is worth at around $22.2 billion on the market. It is valued at around 9.3 times EV/EBITDA and 1.28 times sales. Compared to its peers, including Caterpillar Inc. (NYSE:CAT) and Navistar International Corp (NYSE:NAV), I think Cummins Inc. (NYSE:CMI) is quite reasonably priced. Caterpillar is the biggest company among the three, with around $58.2 billion in total market capitalization. At around $89 per share, Caterpillar is valued a bit cheaper at 8.3 times EV/EBITDA and 0.9 times sales. Navistar is the smallest company, with nearly $3 billion in total market cap. It is trading at $37 per share. Navistar generated negative EBITDA, and thus its EV/EBITDA valuation is not valid. Navistar seems to be the cheapest company at only 0.24 times sales.

In terms of profitability, Navistar is generating losses. Caterpillar is the most profitable company with a 13.2% operating margin, while the operating margin of Cummins is around 11.2%. Among the three, Caterpillar pays investors a dividend yield of 2.3%. Cummins’ dividend yield is a bit lower at 1.8%, whereas Navistar does not pay any dividends to shareholders.

The Foolish bottom line

Cummins Inc. (NYSE:CMI) seems to be a good stock to hold in a long run for value investors. However, I would prefer Caterpillar due to its higher dividend yield, lower valuation and better profitability.

The article This Company Could Become One of Buffett’s Favorites (Part 7) originally appeared on Fool.com and is written by Anh HOANG.

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