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On Jun 18, we issued an updated research report on Terex Corporation TEX. The company is poised to deliver an improved 2018 backed by revenue growth, operating margin improvement in every business segment and backlog strength. Its focus on the Execute to Win strategy, stable global crane markets, product development and disciplined capital-allocation strategy will drive results going forward.
Let’s illustrate these growth factors in detail.
Upbeat Guidance for 2018
For 2018, Terex’s EPS guidance is at $2.70-$3.00, reflecting year-over-year growth of 85% at the mid-point. This upbeat outlook is on the back of strong first-quarter results, capital-market actions, and operational improvements over the balance of 2018. The company anticipates sales to be up 15% to about $5 billion in 2018. Sales in the Aerial Work Platforms (“AWP”) segment are expected to be up around 18% while the Material Processing (“MP”) segment’s sales are projected to improve 15%.
Additionally, the company expects operating margin at around 7.1% in 2018, a 200-basis-point improvement compared with 2017. This has been backed by operating leverage on higher volumes. For the year, EBITDA is projected between $410 million and $440 million, approximately 45-55% higher than 2017, driven by strong operational performance.
From a quarterly perspective, the company expects a normal traditional sales pattern and earnings per share to be generated roughly 15% in the first quarter, 35% in the second, 30% in the third and 20% in the fourth. The company will continue to implement the Simplify and Execute to Win strategy. It witnessed benefits from commercial excellence and expects to realize benefits from strategic sourcing in the second half of 2018. Moreover, focus on disciplined capital-allocation strategy and backlog strength will stoke growth.
Execute to Win Strategy: A Key Catalyst
Terex’s Execute to Win strategy is focused on improving capabilities by investing in people, processes and tools in three priority areas, comprising commercial excellence, lifecycle solutions and strategic sourcing. For this, the company recently approved an investment in its Utilities business to build a new facility in Watertown. This state-of-the-art manufacturing center will enable consolidation of 10 buildings into one, and meet the growing needs of utility customers. Terex has also implemented a new operational financial management system under the plan which will provide a continued view of internal financial information across its businesses.
Crane Segment Well Poised for Growth
Terex’s Cranes segment will expand on fairly stable global cranes markets. The company reported increased sales and backlog in mobile cranes, tower cranes and utility equipment lately. It is working with customers to align machinery delivery dates and expect productivity to normalize in the second half of 2018.
The company also continues to roll out new products. Terex delivered the first AC 300-6 production unit in first-quarter 2018, the latest addition to the Demag line of all-terrain cranes. The company also introduced a flat top tower crane, the CTT 472, which will increase productivity of customers on the job site.
Backlog Strength a Tailwind
For the fifth quarter in a row, Terex’s backlog grew year over year in every segment in first-quarter 2018. Its total segment backlog climbed 54% year over year to $634 million. The AWP segment reported backlog growth of 43% year over year in the quarter. Further, orders in the first quarter were up 50% and backlog surged 77% in the MP segment, year over year, reflecting strong market momentum. Consequently, solid backlog along with an improving global market positions the company well for 2018.
Focus on Capital-Allocation to Boost Performance
Terex continues to execute its disciplined capital-allocation strategy in 2018. The company repurchased 5 million shares for $205 million in the first quarter. Further, buybacks will support the stock. Terex maintained free cash flow guidance of $100 million for the year. It raised the capital expenditure outlook to $80 million, reflecting the utilities facility project and other targeted investments. The company reiterated target to achieve a 20% or greater ROIC by 2020. ROIC is expected to improve to 16% in 2018. ROIC expansion values operational improvement and significant improvements made to Terex’s capital structure.
Share Price Performance
Terex has outperformed its industry with respect to price performance over the past three months. The stock has gained around 3%, while the industry recorded decline of 3%.
Zacks Rank & Other Stocks to Consider
Terex sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Some other top-ranked stocks in the same sector include Axon Enterprise, Inc. AAXN, DMC Global Inc. BOOM and Zebra Technologies Corporation ZBRA. All of these stocks carry the same rank as Terex.
Axon Enterprise has expected long-term growth rate of 25%. Its shares have surged 72% in the past three months.
DMC Global has expected long-term growth rate of 20%. Its shares have appreciated 67% over the past three months.
Zebra Technologies has expected long-term growth rate of 5%. Its shares have appreciated 11% over the past three months.
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