Critical Analysis: Cummins (NYSE:CMI) versus Power Solutions International (NASDAQ:PSIX)

Power Solutions International (NASDAQ:PSIX) and Cummins (NYSE:CMI) are both auto/tires/trucks companies, but which is the better investment? We will contrast the two businesses based on the strength of their analyst recommendations, valuation, earnings, profitability, dividends, risk and institutional ownership.

Institutional and Insider Ownership

22.3% of Power Solutions International shares are owned by institutional investors. Comparatively, 83.5% of Cummins shares are owned by institutional investors. 0.6% of Power Solutions International shares are owned by insiders. Comparatively, 0.6% of Cummins shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Analyst Ratings

This is a breakdown of recent ratings and target prices for Power Solutions International and Cummins, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Power Solutions International	0	0	0	0	0.00
Cummins	0	8	5	0	2.38

Cummins has a consensus price target of $383.08, suggesting a potential upside of 2.51%. Given Cummins’ stronger consensus rating and higher probable upside, analysts plainly believe Cummins is more favorable than Power Solutions International.

Profitability

This table compares Power Solutions International and Cummins’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Power Solutions International	12.46%	293.35%	15.94%
Cummins	11.57%	27.12%	9.27%

Risk & Volatility

Power Solutions International has a beta of 1.03, indicating that its share price is 3% more volatile than the S&P 500. Comparatively, Cummins has a beta of 1, indicating that its share price has a similar volatility profile to the S&P 500.

Earnings and Valuation

This table compares Power Solutions International and Cummins”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Power Solutions International	$458.97 million	1.94	$26.31 million	$2.36	16.39
Cummins	$34.10 billion	1.50	$735.00 million	$28.17	13.27

Cummins has higher revenue and earnings than Power Solutions International. Cummins is trading at a lower price-to-earnings ratio than Power Solutions International, indicating that it is currently the more affordable of the two stocks.

About Power Solutions International

Power Solutions International, Inc. engages in the design, manufacture, and trade of power systems and electrical power generation equipment. The firm provides integrated turnkey solutions to global original equipment manufacturers and end-user customers within the energy, industrial, and transportation end markets. The company was founded by Gary S. Winemaster, Kenneth J. Winemaster, and William Winemaster in February 1985 and is headquartered in Wood Dale, IL.

About Cummins

Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, electric and hybrid powertrains, and related components worldwide. It operates through five segments: Engine, Distribution, Components, Power Systems, and Accelera. The company offers diesel and natural gas-powered engines under the Cummins and other customer brands for the heavy and medium-duty truck, bus, recreational vehicle, light-duty automotive, construction, mining, marine, rail, oil and gas, defense, and agricultural markets; and offers parts and services, as well as remanufactured parts and engines. It provides power generation systems, horsepower engines, heavy and medium duty engines, application engineering services, custom-designed assemblies, retail and wholesale aftermarket parts, and in-shop and field-based repair services. In addition, the company offers emission solutions; turbochargers; air and fuel filters, fuel water separators, lube and hydraulic filters, coolants, fuel additives, and other filtration systems; and electronic control modules, sensors, and supporting software, as well as new, replacement, and remanufactured fuel systems. Further, it provides automated transmissions; standby and prime power generators, controls, paralleling systems, and transfer switches, as well as A/C generator/alternator products under the Stamford and AVK brands; and electrified power systems with components and subsystems, including battery, fuel cell, and hydrogen production technologies. Additionally, it offers filtration, aftertreatment, controls systems, air handling systems, and electric power generation systems, and batteries. It sells its products to original equipment manufacturers, distributors, dealers, and other customers. The company was formerly known as Cummins Engine Company and changed its name to Cummins Inc. in 2001. Cummins Inc. was founded in 1919 and is headquartered in Columbus, Indiana.