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Terex (TEX) Stock Plunges 32% YTD: Will It Bounce Back?

·5 min read

Terex Corporation’s TEX has been making commendable progress in its strategic transformation plan with three principal elements — Focus, Simplify and Execute to Win. The company is now transitioning to its next phase of “Execute, Innovate, Grow.” However, shares of the company have lost 31.8% year to date compared with the industry’s decline of 0.9%. This downside can be primarily attributed to the loss incurred in the first two quarters of this year and lower customer demand in its end markets amid the coronavirus pandemic.

Let’s delve deeper.

Factors Hurting the Stock

Terex reported adjusted loss per share of 35 cents in first-quarter 2020, followed by a second-quarter 2020 adjusted loss per share of 5 cents. The company had reported profit in the first two quarters of 2019. The company’s results were hurt by lower demand for aerial work platforms and telehandlers in the Aerial Work Platforms (AWP) segment, and materials processing equipment, material handlers, cranes and concrete mixer trucks in the Material Processing (MP) segment owing to the COVID-19 pandemic, which adversely impacted customer sentiment and spending, leading to a downturn in its markets.

Although the global economic activity continues to recover, it remains below the pre-pandemic levels. Therefore, Terex anticipates sales in the second half of the year to be similar to the first half, due to the current market conditions.

Key Growth Drivers

Terex is focused on aligning production across its segments in response to lower customer demand while aggressively managing cost and working capital. Despite lower demand, its AWP segment will gain from strategic source and savings, operational execution, strengthening global footprint and innovative new products in the long haul. The utilities business will benefit from the new manufacturing facility being built in Watertown, SD that will increase capacity and significantly improve productivity. In the MP segment, strong product pipeline, expansion into new geographies, delivering innovative new products and consistent strong execution position the segment well for future growth. The segment has integrated the Cranes business into its portfolio of specialty businesses.

Terex has made considerable progress in its Focus, Simplify and Execute to Win strategy. With the Focus and Simplify elements of this strategy been met, it is making progress toward the process improvement objectives associated with Execute to Win.

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

Under its Execute to Win strategy, the company remains focused on enhance 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 driving cash flow and profitability and continue to innovate in products and technology.

Per the Institute for Supply Management’s latest report, the U.S Purchasing Managers’ Index (PMI) came in at 56% for August, following a reading of 54.2 in July and 52.6 in June.  This was the biggest expansion in the manufacturing sector since November of 2018 as August marked the first full month of operations. Considering that the PMI was consistently below 50 (which denotes contraction) during March to May, the recovery over the past three months instills optimism. A pick up in the industrial sector will lead to improved orders for Terex.

We believe that these factors will eventually benefit Terex’s results and aid its share price post a turnaround.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the Industrial Products sector include IIVI Incorporated IIVI, Silgan Holdings, Inc. SLGN and SiteOne Landscape Supply, Inc. SITE. While IIVI sports a Zacks Rank #1 (Strong Buy), Silgan and SiteOne carry a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Silgan has a projected earnings growth rate of 28.7% for 2020. The company’s shares have appreciated 24% year to date.

IIVI has an estimated earnings growth rate of 29% for the ongoing year. The company’s shares have gained 16% so far this year.

SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. Year to date, the stock has surged 31%.

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