By: Rob Wertheimer & Scott Davis

Cummins has a depressed multiple problem from electrification risk, global scale in reciprocating engines, no clear way to buy new technology to dominate electrification, and an unlevered balance sheet that could readily fund $5bn in debt, perhaps more without substantial equity. GE has a stated desire to simplify its businesses, is under scale in recip engines, wants to divest transportation, and is likely ready to move quickly. Cummins shares could see 10-15% upside as capital is deployed and more if the diversification of the business reduces fears on the multiple.

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