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Terex Stock (TEX) Down 51% in a Year: Will It Bounce Back?

Zacks Equity Research

Shares of Terex Corporation TEX have lost 51% over the past year compared with the industry’s decline of 14%. The downside resulted from an overall slowdown in industrial equipment demand, muted sales volume and unfavorable impacts of the coronavirus pandemic.

 



 

Factors Plaguing Terex

Terex stock dipped 9.2%, following its first-quarter 2020 earnings release. The company reported adjusted loss per share of 35 cents in the March-end quarter as against adjusted earnings per share of 87 cents in the prior-year quarter. Revenues in the quarter declined 26.5% year over year to $834 million.

Terex’s first-quarter results were negatively impacted by the coronavirus pandemic, with a sharp contraction of customers’ capital equipment purchases. The company suspended production across its global manufacturing facilities in response to lower demand and comply with local government mandates. Also, it is reducing supplier-component purchases in line with lower production. Consequently, Terex withdrew the current-year guidance on account of the uncertainties related to the pandemic. Going forward, its operating results will likely continue to conservative stance to manage their businesses by aggressively destocking inventory and holding back on product launches. The slowdown in customer orders remains a major headwind. The company also stands the risk of supply-chain disruptions, thanks to the spread of the coronavirus.

Challenging global markets and sluggish end-market demand in the United States and Europe are putting pressure on Terex’s Aerial Work Platform (“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. Global market uncertainties and the coronavirus-induced crisis have been weighing on the Material Processing (“MP”) segment. Moreover, cautious customer sentiment is leading to delayed capital purchases of crushing and screening products, material handlers, and environmental equipment.

The Zacks Consensus Estimate for current-year loss per share is pinned at 92 cents, suggesting a significant decline of 128.3% from the prior year’s reported figure. The estimate has moved from earnings of 42 cents per share to a loss of 92 cents over the past 30 days.

Will the Stock Rebound?

Despite the near-term headwinds, the company is aggressively managing production across its segments. Terex’s AWP segment will likely gain from strategic source and savings, operational execution, strengthening global footprint and innovative products in 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, strong product pipeline and consistent strong execution positions the segment well for growth.

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 operating performance.

The company is focused on maintaining strong liquidity and cash position, placing it well to navigate through the current unprecedented situation. Consequently, Terex has implemented several cost-reduction actions to preserve cash. The company is implementing cost savings in excess of $100 million. Moreover, Terex has reduced 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.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are Silgan Holdings Inc. SLGN, Ampco-Pittsburgh Corporation AP and Energous Corporation WATT. While Silgan sports a Zacks Rank #1 (Strong Buy), Ampco-Pittsburgh and Energous carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Silgan has a projected earnings growth rate of 11.3% for 2020. The company’s shares have gained 6% in the past three months.

Ampco-Pittsburgh has an expected earnings growth rate of 2.70% for the current year. The stock has appreciated 4% in the past three months.

Energous has an estimated earnings growth rate of 17.3% for the ongoing year. The company’s shares have rallied 17% in the past three months.

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