Latest Credit Suisse comments on TEX, reiterate $46 target
25 April 2013
Target Price $46
Terex Corporation (TEX)
SMALL & MID CAP RESEARCH
A TEXcellent Adventure
■ Thoughts Post Call: TEX held its own on a good enough Q1 and reiterated its 2013 outlook. On the positive, while AWP has largely been a top line story, the margin story is gaining traction and likely has upside in ‘13 with Q1 margins coming in at 14.2%. Crane, Port Equipment and Construction are seeing green shoots in the US and Europe with order trends improving, leading to greater visibility. In some products, TEX is seeing backlog build into 2014. In total, MHPS and Construction are still losing money, but volumes on Port and Construction will help along with add’l restructuring in Q2 ($30-$50M in MHPS) to streamline SG&A. TEX is close to selling a components business in Construction, which we estimate was losing ~$10M annually. Finally, with FCF continuing strong, we see oppty’s for further debt reduction in the 2H which is not embedded in est’s. We adj. our FY’13-14 EPS to $2.70 and $3.85, and maintain our FY’15 EPS of $5.00. We reiterate our $46 TP and TEX remains our top small cap pick.
■ Details On Outlook: TEX reiterated its 2013 EPS guide of $2.40-2.70 (ex restructuring) on revenues of $7.9-8.3B. This compares to the street at $2.62 per share and $8.0B. Total Op margin was maintained at 7-8% as well. In Q2, TEX expects to take a $30-50M restructuring charge in MHPS although anticipates a similar amount in savings over the next 12-24 months. Under the new reporting structure, TEX guided 2013 AWP sales to $2.0-2.2B with OM at 12-15%, while Construction sales are guided at $1.30-1.45B on OM of 1-3%. Cranes sales are guided between $2.15-2.30B with OM at 9-11%. MHPS sales are guided to $1.8- 1.9B on OM of 3-5% and MP sales are guided at $700-750M with OM of 11-13%. The tax rate is forecast at 36% and FCF guidance maintained at $500M.