AI-Driven Demand and Electrification Will Unlock New Upside Opportunities

Key Takeaways

• Diversified growth in power systems and clean energy investments is offsetting weakness in traditional truck markets, supporting stronger margins and resilience.
  
• Regulatory changes and new product launches are fueling pricing power and future revenue growth, as the company manages costs and expands production capacity.
  
• Cummins faces cyclical demand risks, regulatory and tariff uncertainty, weak alternative powertrain growth, rising competition, and vulnerability in key international markets.

Catalysts

Offers various power solutions worldwide.

• Cummins is experiencing strong and steadily growing demand for power generation equipment, especially from the data center sector, driven by increasing urbanization, digital infrastructure expansion, and the global shift toward cleaner, efficient energy solutions; this diversification is lifting revenue and supporting higher EBITDA margins, offsetting softness in the traditional truck markets.
  
• The company's two-year-plus backlog and continued capacity expansions in Power Systems position it to sustain elevated sales growth and margins, especially as additional production capacity comes online in 2026, directly benefiting future revenue and margin expansion.
  
• Tightening global emissions regulations and anticipated adoption of new product platforms (such as EPA27-compliant engines) create an opportunity for pricing power and market share stabilization as fleets upgrade, supporting future revenue growth and premium product margins as regulatory clarity emerges.
  
• Cummins' disciplined cost management, operational improvements, and ability to mitigate tariff headwinds-even as North American truck volumes decline-demonstrate resilient net earnings and margin protection, highlighting underlying operating leverage when cyclical markets recover.
  
• Ongoing investments in electrification, hydrogen, and stationary energy storage broaden Cummins' long-term addressable market; as secular decarbonization trends accelerate, these initiatives can unlock new revenue streams and recurring income (aftersales, services), ultimately supporting long-term earnings growth.

Cummins Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cummins's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.7% today to 10.6% in 3 years time.
• Analysts expect earnings to reach $4.3 billion (and earnings per share of $32.25) by about September 2028, up from $2.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $3.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.2x on those 2028 earnings, down from 18.5x today. This future PE is lower than the current PE for the US Machinery industry at 24.7x.
• Analysts expect the number of shares outstanding to grow by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.31%, as per the Simply Wall St company report.

Cummins Future Earnings Per Share Growth

Risks

• Persistent and worsening weakness in North American heavy
• and medium-duty truck demand (with order rates at multiyear lows and OEMs cutting production) exposes Cummins to large cyclical declines in core engine and component revenues and puts significant pressure on segment margins and earnings, especially if an economic or regulatory recovery is delayed.
  
• Regulatory and tariff uncertainty, with no clarity on the timeline or details of EPA27 emissions standards and ongoing unpredictable international tariff changes, is elevating costs, disrupting investment planning, and forcing duplicative engineering/development work; this increases SG&A and R&D expenses and could compress net margins until the policy environment stabilizes.
  
• Slowing growth and sustained EBITDA losses in Accelera (alternative powertrains and electrolyzers) indicate that Cummins is not yet capturing significant share or profitability in key zero-emission technologies, risking long-term revenue and market share erosion as the industry migrates away from legacy diesel platforms.
  
• Increasing competitive intensity from both traditional peers and new entrants in electrification, hydrogen, and backup power/microgrid solutions may lead to price compression, reduced pricing power, and margin pressure-particularly as pure-play EV and hydrogen firms ramp up offerings, threatening Cummins' ability to maintain its historical premium and long-term gross margins.
  
• International market strength (notably China and data center-driven power systems) currently underpins earnings, but these are vulnerable to de-globalization, shifting government incentives, macroeconomic slowdown, and increased local competition-any reversal in these secular demand tailwinds would negatively impact diversified revenue streams and consolidated profitability.

Valuation

• The analysts have a consensus price target of $418.529 for Cummins based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $500.0, and the most bearish reporting a price target of just $350.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $40.6 billion, earnings will come to $4.3 billion, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 8.3%.
• Given the current share price of $394.78, the analyst price target of $418.53 is 5.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.