Cummins

Sources: FY2025 10-K XBRL five-year data (via edgar.tools), FY2025 and FY2023 Q4 8-K Ex. 99, FY2022 Annual Report.

Income statement

Notes on the table:

FY2021 EBITDA: is calculated as consolidated net income 2,164 + tax 587 + interest 111 + D&A 659. This is consistent with the 14.7% margin in the FY2022 Annual Report.

Dividends per share: for FY2023–FY2025 are calculated from quarterly rates: 1.57/1.68 (FY2023), 1.68/1.82 (FY2024) and 1.82/2.00 (FY2025), each paid twice per year [NV for FY2023–FY2025 quarterly rates]. FY2021 (5.60) and FY2022 (6.04) are from the FY2022 Annual Report.

Basic EPS: FY2024 USD 28.55; FY2025 USD 20.62.

Margins (%, calc.)

Revenue CAGR, FY2021–FY2025: 8.8% (calc.). Nearly all of it came in 2022–2023 from the Meritor acquisition and the post-COVID truck upcycle. Revenue has been flat-to-down since FY2023.

Special items distorting the series:

On an underlying basis, EBITDA ex-special items rose from 15.7% (FY2024) to a record 17.4% (FY2025). This was achieved during a North American truck downturn, which is the key evidence of structural margin improvement.

Balance sheet

At 30 Jun 2026 (Q2-26 8-K):

• Cash and marketable securities USD 3,924 m.

• Total debt USD 7,695 m (loans 459, commercial paper 348, current LTD 151, LTD 6,737).

• Net debt ≈ USD 3,771 m.

• Cummins shareholders' equity USD 12,847 m.

Cash flow

FY2024 operating cash flow was depressed by payment of the emissions settlement: accrued expenses movement was −USD 1,573 m. H1-2026 OCF was USD 1,808 m versus USD 782 m in H1-2025. H1-2026 buybacks were USD 468 m.

Ratios (calc. on year-end balances)

Company-reported ROIC, which excludes special items, was 16% (FY2021) and 15% (FY2022) per the FY2022 Annual Report.

Commentary on trends

Revenue. A step-change came in 2022–2023 (+16.9% and +21.3%), driven by:

• the Meritor consolidation from Aug 2022;

• record truck builds;

• pricing to recover inflation.

FY2024 was flat; the Atmus exit removed about USD 1.3 bn of annualised sales. FY2025 fell 1.3% as North American heavy-duty truck engine sales dropped 18% (USD 4,244 m to 3,489 m). Data-centre power generation offset most of that decline: Distribution power-gen +24%, Power Systems power-gen +19%.

Profitability. Gross margin expanded every year, from 23.7% to 25.3%. The drivers were pricing, mix shift to power generation, and Power Systems operating leverage.

Operating margin in FY2023 (5.2%) is an artefact of the USD 2.0 bn emissions charge. FY2025's 12.0% operating margin is a five-year high despite USD 458 m of electrolyser charges. Ex-charges it would be about 13.4%.

Inflection. The key inflection is the mix shift:

• Power Systems plus Distribution generated USD 3.5 bn of the USD 6.3 bn in FY2025 segment EBITDA (excluding Accelera).

• That is up from USD 2.56 bn of USD 5.8 bn in FY2024.

The earnings base is migrating from truck-cycle exposure to infrastructure-power exposure.

Balance sheet. Leverage peaked after Meritor (FY2022 net debt/EBITDA 1.39x). Commercial paper was progressively terme-out: in 2025 Cummins issued about USD 2.1 bn of new long-term notes (Q2-2025 proceeds from borrowings of USD 2,094 m) and cut commercial paper to USD 353 m. Net debt/EBITDA of 0.73x is conservative for an A-category industrial.

Cash flow. FCF is volatile because of working capital and the settlement payment. FY2025 FCF of USD 2.4 bn covered dividends 2.3x. Management's stated long-term goal is returning 50% of operating cash flow to shareholders.

Working capital. The cash conversion cycle widened to 92.5 days in FY2025 as receivables rose (DSO 63). This partly reflects data-centre project billing. Customer deposits are visible in rising deferred revenue (current deferred revenue USD 1,606 m vs 1,347 m).

Guidance and consensus

Bull case

1. Data-centre power is structural. Power Systems moved from an 18.4% to a 29.5% quarterly EBITDA margin. Backlog (Circe through 2030; record BESS award; EquipmentShare 1 GW) plus the USD 9 bn 2030 target suggest power generation becomes the largest profit pool.

2. Truck trough is behind. Heavy-duty truck engine sales rose 21% sequentially in Q2-2026. Regulatory clarity and a phased MY2027 launch support a multi-year North American recovery on an already-record margin base.

3. Self-help on Accelera and R&D. The electrolyser exit and fuel-cell sale cut Accelera RD&E roughly in half (H1-26 USD 54 m vs 89 m). Combined with post-2027 R&D normalisation, this offers EPS upside of ≥USD 4 independent of markets.

Bear case

1. Peak-margin risk in power generation. Generac (Amazon, USD 2.4 bn), Caterpillar and Rolls-Royce are adding capacity. Gas turbines and fuel cells compete for prime power. Any AI-capex pause hits the highest-multiple earnings. The Sep 2026 target cuts to USD 600 reflect this.

2. EPA 2027 economics diluted. Shorter warranty requirements (100k miles/5 yrs) and implementation flexibilities reduce the expected content/price uplift and pre-buy. Engine margins were already down to 11.6% in H1-2026.

3. Valuation and cash quality. At ~27x LTM GAAP EPS, the stock embeds the 2030 plan. Working-capital intensity (cash conversion cycle 92.5 days) and repeated special charges (USD 2.0 bn in 2023, USD 458 m in 2025, USD 199 m in 2026) dilute the quality of reported earnings.

Catalysts and monitorables (next 12 months)

• Q3-2026 results, expected early November 2026 [NV on date]. Watch Power Systems margin sustainability and H2 delivery.

• Final EPA 2027 NOx rule, and any NHTSA action on emission credits (possible non-cash write-off).

• Data-centre order announcements and genset lead times; competitor capacity announcements.

• FY2027 guidance (Feb 2027): first read on the 2030 trajectory.

• North American Class 8 orders and pre-buy evidence; China construction demand.

• Accelera loss run-rate; any further portfolio exits.

• Pace of buybacks versus the 50%-of-OCF return goal; a dividend increase in Jul 2027.

Analyst verdict

Cummins in late 2026 is a better business than its valuation history suggests, but no longer a mispriced one.

The FY2025 numbers settle the debate about margin quality. Despite an 18% collapse in heavy-duty truck engine revenue, the company delivered a record 17.4% EBITDA margin ex-special items. Power Systems and Distribution posted record profitability, and the balance sheet ended the year at 0.7x net debt/EBITDA. The 2026 run-rate is better still: revenue growth guidance has been raised twice to +10–13%, and Power Systems is earning margins (26.8% in H1) once associated with niche capital-equipment franchises.

Management has also been decisive in reallocating capital. The hydrogen bets that defined the 2019–2023 strategy have been exited or impaired. Reported losses are painful, but the forward drag shrinks materially.

The question is what the market should pay for that mix. After peaking at about USD 725 in June, the shares have de-rated roughly 29% to about USD 520. Drivers include:

• EPA relaxation of 2027 warranty requirements, which erodes the content story;

• new evidence of intensifying data-centre genset competition, notably Generac–Amazon;

• broker target cuts.

At about 17x consensus 2026 EPS and about 13x LTM EBITDA ex-items, the stock now discounts a reasonable, not heroic, path toward the USD 45–50 bn / >20% 2030 targets.

Assessment: constructive, with moderate conviction.

Risk/reward: the recent pullback has restored a positive skew.

Downside protection: a truck recovery, Accelera loss reduction and resumed buybacks.

Upside: data-centre power, the highest-return segment, still growing near 20%.

Key risk: a cyclical slowdown in AI infrastructure spending coinciding with a soft EPA-2027 transition. That combination would compress the multiple and the margin together.

Investors should track Power Systems margins and order cadence as the single most important variable through 2027.

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Prepared from public sources as of 6 October 2026. Figures marked [NV] require verification against primary filings before use in investment decisions. This document is analytical research, not investment advice.