With 87% ownership in Cummins Inc. (NYSE:CMI), institutional investors have a lot riding on the business

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2 days ago

Key Insights
Institutions' substantial holdings in Cummins implies that they have significant influence over the company's share price
The top 22 shareholders own 51% of the company
Recent purchases by insiders
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To get a sense of who is truly in control of Cummins Inc. (NYSE:CMI), it is important to understand the ownership structure of the business. With 87% stake, institutions possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).
And last week, institutional investors ended up benefitting the most after the company hit US$48b in market cap. The gains from last week would have further boosted the one-year return to shareholders which currently stand at 23%.
Let's delve deeper into each type of owner of Cummins, beginning with the chart below.
Check out our latest analysis for Cummins
What Does The Institutional Ownership Tell Us About Cummins?
Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.
Cummins already has institutions on the share registry. Indeed, they own a respectable stake in the company. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Cummins' earnings history below. Of course, the future is what really matters.
Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. We note that hedge funds don't have a meaningful investment in Cummins. The company's largest shareholder is The Vanguard Group, Inc., with ownership of 13%. With 9.1% and 4.7% of the shares outstanding respectively, BlackRock, Inc. and State Street Global Advisors, Inc. are the second and third largest shareholders.
Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 22 shareholders, meaning that no single shareholder has a majority interest in the ownership.
Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.
Insider Ownership Of Cummins
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.
Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.
Our information suggests that Cummins Inc. insiders own under 1% of the company. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own US$224m worth of shares. It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.
General Public Ownership
The general public-- including retail investors -- own 12% stake in the company, and hence can't easily be ignored. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.
Next Steps:
I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Be aware that Cummins is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...
Ultimately the future is most important. You can access this free report on analyst forecasts for the company.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
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