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Terex (TEX) Rides on Strategic Growth Initiatives, Cost Cuts

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·4 min read
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On Dec 30, we issued an updated research report on Terex Corporation TEX. The company is benefiting from its strategic growth initiatives in the Aerial Work Platforms (AWP) and Materials Processing (MP) segments. Its focus on investments in innovative products, expansion of manufacturing facilities and cost-reduction actions will fuel growth. However, the pandemic-induced weak customer demand in its end markets is concerning.

Strategic Initiatives to Reap Benefits

Terex’s AWP segment will gain from strategic source and savings, right-sizing the cost structure, operational execution and strengthening the company’s global footprint over the long haul. The utilities business will benefit from the new manufacturing facility being built in Watertown, SD, that will increase capacity and significantly boost productivity. In the MP segment, a solid product pipeline, expansion into newer geographies and manufacturing of innovative products position the segment well for growth.

Execute to Win Strategy: A Key Catalyst

Terex has made considerable progress in its Focus, Simplify and Execute to Win strategy. Having fulfilled the Focus and Simplify elements of this strategy, the company is now making progress toward the process-improvement objectives associated with Execute to Win.

In sync with the Focus element that calls for increased investments in high-performing businesses, Terex completed the divesture of the Demag Mobile Cranes business and certain U.S. Crane product lines. The company’s business portfolio now comprises businesses that have the ability to earn more than their cost of capital through business cycles consistently. Also, over the past few years, Terex has transformed into a structurally simpler company committed to becoming more process-driven in order to achieve operational excellence.

Under its Execute to Win strategy, the company is focused on enhancing its capabilities by investing in people, processes and tools in three priority areas — Commercial Excellence, Lifecycle Solutions and Strategic Sourcing. Terex is now committed to its next phase of “Execute, Innovate, Grow.” It will focus on boosting cash flow and profitability and continue to innovate products and technology.

A Healthy Balance Sheet Bodes Well

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

However, there are a few factors that are likely to impede growth.

Challenging global markets and sluggish end-market demand in the United States and Europe will continue to strain Terex’s AWP segment’s sales volume in the current quarter. Apart from this, global market uncertainties and the coronavirus-induced crisis have been weighing on the MP segment. Therefore, the company anticipates revenues in the fourth quarter to be similar to the first three quarters of the year, thanks to the current market conditions.

Price Performance

Over the past six months, shares of Terex have appreciated 96.4%, outperforming the industry’s growth of 41.1%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector include AGCO Corporation AGCO, Avery Dennison Corporation AVY and Ball Corporation BLL. While AGCO flaunts a Zacks Rank #1 (Strong Buy), Avery Dennison and Ball Corp carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has an expected earnings growth rate of 15.5% for 2020. The stock has appreciated 89.4% in six months’ time.

Avery Dennison has an estimated earnings growth rate of 5% for the ongoing year. Shares of the company have gained 35.3% in the past six months.

Ball Corp has a projected earnings growth rate of 16.2% for the current year. Over the past six months, the company’s shares have gained 31.5%.

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