Terex Corporation TEX remains poised for growth backed by its Execute to Win strategy, and initiatives in Aerial Work Platforms (AWP) and Materials Processing (MP) segments. However, the overall slowdown in industrial equipment demand is a headwind.
The company currently carries a Zacks Rank #3 (Hold) and has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3, offer the best investment opportunities.
Below, we briefly discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring Terex
Positive Earnings Surprise History
The company outpaced the Zacks Consensus Estimate in two of the trailing four quarters, the average positive beat being 13.15%. It has an estimated long-term earnings growth rate of 6.5%.
Looking at Terex’s price-to-earnings ratio, shares are underpriced at the current level, which seems to be attractive for investors. The company has a trailing P/E ratio of 8.3, which is below the industry average of 13.1.
Terex has made considerable progress in its strategic transformation plan, consisting three principal elements — Focus, Simplify and Execute to Win. While the Focus element calls for increased investments on high-performing businesses, the Simplify aspect focuses on complexity reduction and cost management. The Execute to Win is focused on three key management processes — talent development, strategy development and deployment, and operational excellence.
In line with this, Terex sold the Demag mobile crane business and exited the mobile crane product lines manufactured at Oklahoma City facility, in a bid to improve its operating performance.
Terex’s segments are poised to grow on several initiatives. Its AWP segment will gain from strategic source and savings, operational execution, strengthening global footprint and innovative new products over the long haul. The segment continues to improve sales in the Asia-Pacific region and China, fueled by increasing product adoption. The utilities business will gain from the new manufacturing facility being built in Watertown, SD, which will increase capacity and significantly improve productivity.
In the MP segment, the company continues to invest in India to capitalize on the country and the surrounding markets’ prospects. Its solid product pipeline and continued execution also position the segment well for growth. Moreover, the company continues to follow a disciplined capital-allocation strategy while investing in future growth and creating additional value for shareholders.
Few Headwinds to Counter
While the global-market uncertainty has been weighing on the Terex’s MP segment, the AWP segment is bearing the brunt of sluggish demand in the major markets, straining sales volume. Thus, the company is cutting down production and managing inventory levels to align with demand, which will impact margins unusually. Moreover, lower volume, adverse foreign-exchange rates and product mix will weigh on margins for the current year.
Considering the overall slowdown in industrial equipment demand and impact of unfavorable foreign-exchange rates, Terex has lowered its earnings per share guidance to $3.00-$3.20 on net sales of $4.4 billion for 2019 from the prior projection of $3.40-$3.80 on net sales of $4.6 billion. For the current year, Terex anticipates sales to be down 10% year over year.
The company’s shares have lost 2.9% over the past year, compared to the industry’s gain of 11.6%.
Investors might want to hold on to the stock at present, as it has ample prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are DXP Enterprises, Inc. DXPE, Cintas Corporation CTAS and Graphic Packaging Holding Company GPK. While DXP Enterprises sports a Zacks Rank #1, Cintas and Graphic Packaging carry a Zacks Rank of 2, at present. You can see the complete list of today's Zacks #1 Rank stocks here.
DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the stock has appreciated 23.1%.
Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has surged 57.8% over the past year.
Graphic Packaging has a projected earnings growth rate of 13.1% for 2020. The company’s shares have gained 40.5% over the past year.
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