MEET vs. WDAY: Which Stock Should Value Investors Buy Now?
On Mar 9, we issued an updated research report on The Manitowoc Company Inc. MTW. The company is grappling with sluggish crawler and rough terrain markets as well as cost pressures pertaining to materials and labor. The company’s cost reduction and facility consolidation efforts continue to yield savings but are not yet being fully leveraged given current low volumes. Further, President Trump's recent announcement to impose a 25% tariff on the imports of steel adds to woes.
Disappointing Fourth Quarter
Manitowoc reported fourth-quarter 2017 adjusted loss per share of 15 cents, narrower than the prior-year quarter’s loss of 94 cents. Results came in wider than the Zacks Consensus Estimate of a loss of 6 cents per share.
Rising Input Costs, Steel Tariff to Dent Margins
The company’s primary raw materials are structural and rolled steel, which are purchased from various domestic and international suppliers. Apart from steel, it is also exposed to fluctuating market prices for commodities, including copper, aluminum, and petroleum-based products. Trump's recent announcement to impose a 25% tariff on the imports of steel and 10% on aluminum will thwart its performance. Moreover, increased labor costs as well as constraints in the supply chain are likely affect Manitowoc’s results in the near term.
Demand Remains Weak
Both the crawler and rough terrain markets continue to be sluggish. These are typically driven by infrastructure spend. A pickup in volumes is necessary in order for the company to meet its 2020 goal of double-digit margins. Despite the recent improvements noted in the United States and European markets, other key international APAC markets remain weak, except Australia. A pull back in investment in the Middle East, due to ongoing structural changes further delayed an eventual recovery. Moreover, the Middle East remains challenging due to geopolitical uncertainties as well as market competitions.
In the wake of lackluster demand, it will be difficult for Manitowoc to raise prices to combat raw material inflation.
Restructuring Efforts Yet To Drive Expected Benefits
Manitowoc’s restructuring efforts in the United States are on track but the company will be unable to realize the full benefits of the actions until it witnesses a broad-based sustainable recovery in end markets that utilize crawler and rough terrain cranes. Though the company has significantly reduced its fixed cost to align with the current end market demand, it is still not enough to take full advantage of the expected leverage. Meanwhile, the company will not produce at its full capacity until demand picks up.
Estimates Moving South
The estimates for the company for the first quarter of 2018 and fiscal 2018 have moved south in the past 30 days, reflecting the negative outlook of analysts on the company. For the first quarter, the expected loss per share has gone down from 15 cents per share to 20 cents per share over the past 30 days.
For fiscal 2018, the estimate has declined 16% to 51 cents per share over the past 30 days.
Falling Behind the Industry
Manitowoc's stock has gained 28.8% in the past one year, falling way behind industry, which witnessed a growth of 68.4%.
Zacks Rank & Stocks to Consider
Manitowoc currently has a Zacks Rank #4 (Sell).
Some better-ranked stocks in the same industry are Komatsu Ltd. KMTUY, Caterpillar Inc. CAT and H&E Equipment Services, Inc. HEES. While Komatsu sports a Zacks Rank #1 (Strong Buy), Caterpillar and H&E Equipment carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Komatsu has a long-term earnings growth rate of 31.7%. Its shares have gone up 35% in the past year.
Caterpillar has a long-term earnings growth rate of 12%. The company’s shares have been up 71% in a year’s time.
H&E Equipment Services has a long-term earnings growth rate of 14.4%. The stock has gained 74% in a year’s time.
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