Cummins: Diesel Engine Maker with Shareholder-Friendly Management

Christopher Bloomstran of Semper Augustus Investments Group presented his in-depth investment thesis on Cummins (US: CMI) at Best Ideas 2019.

Thesis summary:

Cummins provides diesel and natural gas engines and engine-related component products, including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, transmissions and electric power generation systems. Cummins sells to OEMs, distributors, and other customers. The network of ~500 wholly-owned and independent distributor locations spans across 7,500 dealer locations in 190+ countries.

Long-standing customers include primary heavy and medium-duty truck manufacturers, including PACCAR, Daimler Trucks North America, Navistar International, Volvo, and Fiat Chrysler. The stock closed 2018 at $133 per share, down nearly one-third from the all-time high reached in early 2018. The business will have produced $23+ billion in revenue and earned $2+ billion in profit in the year just ended. Led by a shareholder-focused and long-tenured management team, returns on equity and capital are 20+%.

The stock discounts the inevitable economic cycle as well as concerns about electrified power as a disruptor to diesel engine technology. At 9.6x current-year expected earnings, the investment case rests on both risks being overstated and over-discounted.

Listen to this session:

slide presentation audio recording

About the instructor:

Christopher P. Bloomstran, CFA , is the President and Chief Investment Officer of Semper Augustus Investments Group LLC. Chris has more than 25 years of investment experience with a value-driven approach to fundamental equity and industry research. At Semper Augustus, Chris directs all aspects of the firm’s research and portfolio management effort. Prior to forming Semper Augustus in 1998 – in the midst of the stock market and technology bubble – Chris was a Vice President and Portfolio Manager at UMB Investment Advisors. While at UMB Investment Advisors, Chris managed the Trust Investment offices in St. Louis and Denver. Among his investment duties at the firm, he managed the Scout Balanced Fund from the fund’s inception in 1995 until 1998, when he left to start Semper Augustus. Chris received his Bachelor of Science in Business Administration with an emphasis in Finance from the University of Colorado at Boulder, where he also played football. He earned his Chartered Financial Analyst (CFA) designation in 1994. Chris is a member of the CFA Society of St. Louis and of the CFA Institute. He has served on the Board of Directors of the CFA Society of St. Louis since 2002, where he was elected to sequential terms as Vice President from 2005 to 2006, President from 2006 to 2007 and Immediate Past President from 2007 to 2009. Chris has judged the Global Finals and the Americas Finals several times for CFA Institute’s University Global Investment Challenge. Chris served for a number of years as a member of the Bretton Woods Committee in Washington DC, an institution championing and raising awareness of the International Monetary Fund, the World Bank and the World Trade Organization. He has also served on various not-for profit boards in St. Louis. His resides in St. Louis with his wife and two children.