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Terex to Gain From Growth Initiatives Amid Bleak Demand

Zacks Equity Research
·4 min read

On Jun 23, we issued an updated research report on Terex Corporation TEX. The company is progressing well on its strategic transformation plan, and ongoing initiatives in the Aerial Work Platforms (AWP) and Materials Processing (MP) segments. Its focus on investment in innovative products, digital innovation in parts and services, as well expansion of manufacturing facilities will also fuel growth. However, the overall slowdown in industrial equipment demand, muted sales volume and unfavorable impact of the coronavirus pandemic are headwinds.

Weak Industrial Demand, Coronavirus Crisis to Hurt 2020 Performance

Terex suspended production across its global manufacturing facilities in response to the muted demand due to the coronavirus pandemic. Also, it is reducing supplier-component purchases in line with lower production. Consequently, Terex has revoked the current-year guidance due to the uncertainties related to the pandemic. The slowdown in customer orders is a major headwind. The company also stands the risk of supply-chain disruptions due to the coronavirus crisis.

Challenging global markets and sluggish end-market demand in the United States and Europe are straining Terex’s AWP segment’s sales volume. Terex is, thus, reducing production and managing inventory levels to align with the demand. Moreover, lower volume, adverse foreign-exchange rates and product mix will weigh on margins for the year. This apart, global market uncertainties and the coronavirus-induced crisis have been weighing on the MP segment. Moreover, cautious customer sentiment is resulting in delayed capital purchases of crushing and screening products, material handlers, and environmental equipment.

Strategic Initiatives to Reap Benefits

Terex’s AWP segment will likely gain from strategic source and savings, operational execution, a strong global footprint and innovative products over the long haul. The utilities business will likely benefit from the new manufacturing facility being built in Watertown, SD, which is expected to boost capacity and significantly improve productivity. In the MP segment, a solid product pipeline position the segment well for growth.

Execute to Win Strategy: A Key Catalyst

Terex has made considerable progress in its strategic transformation plan that has three principal elements — Focus, Simplify and Execute to Win. While the Focus element calls for increased investments in 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 sync with this, Terex sold the Demag mobile crane business and exited the mobile crane product lines manufactured at the Oklahoma City facility to improve its operating performance.

Healthy Balance Sheet Bodes Well

The company is focused on maintaining strong liquidity and cash position, placing it well to navigate through the current unprecedented situation. Terex has implemented several cost-reduction actions to preserve cash. Moreover, Terex has reduced its capital expenditure for the current year, while continuing to fund growth capital projects. The company continues to invest in innovative products and the expansion of manufacturing facilities to ensure future growth.

Price Performance

Over the past year, shares of Terex have decreased 37.7% compared with the industry’s decline of 7.2%.



Zacks Rank & Stocks to Consider

Terex currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Lakeland Industries, Inc. LAKE, Broadwind Energy, Inc. BWEN and Axon Enterprise, Inc. AAXN. While Lakeland Industries sports a Zacks Rank #1 (Strong Buy), Broadwind Energy and Axon carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lakeland Industries has a projected earnings growth rate of 127.8% for fiscal 2020. The company’s shares have surged 44.1% in the past three months.

Broadwind Energy has an expected earnings growth rate of 174% for the current year. The stock has appreciated 6% over the past three months.

Axon has an estimated earnings growth rate of 14.4% for the ongoing year. The company’s shares have rallied 21.3% in the past three months.

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