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Why Hold Strategy is Apt for Terex (TEX) Stock Right Now

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·5 min read
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Terex Corporation TEX is gaining from forecast-topping first quarter 2021 results and focus on cost-reduction actions. Moreover, the strategic growth initiatives, investment in innovative products, digital innovation and expansion of manufacturing facilities are driving growth.

The company currently carries a Zacks Rank #3 (Hold) and has a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3, offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings & Sales Top Q1 Estimates: Terex reported first-quarter 2021 adjusted earnings of 56 cents per share, beating the Zacks Consensus Estimate of 22 cents. This also marked a turnaround from the loss of 35 cents per share incurred in the prior-year quarter. The upbeat results can be attributed to rising demand, margin expansion across the company’s segments and its cost-reduction efforts. Revenues of $864 million also surpassed the consensus mark of $821 million.

The company has a trailing four-quarter average earnings surprise of 306.8%.

Positive Earnings Estimates: The Zacks Consensus Estimate for the company’s current-year earnings is currently pegged at $2.49, suggesting a whopping 1,815.3% growth from the prior-year earnings of 13 cents per share.

Price Performance

Shares of the company have appreciated 44.5% over the past six months, outperforming the industry’s growth of 34.7%.

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Zacks Investment Research

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Growth Drivers in Place

Terex has made significant progress in its Focus, Simplify and Execute to Win strategy during the 2016-2019 period. In sync with the Focus element that calls for increased investments on high-performing businesses, the company completed the sale of the Demag Mobile Cranes business and certain U.S. Crane product lines.

With the Focus and Simplify elements of this strategy being met, the company is making progress toward the process-improvement objectives associated with Execute to Win. Terex is now committed to its next phase of “Execute, Innovate, Grow.” Per the “Execute” theme, the company continues the progress made with “Execute to Win” by expanding process discipline and implementing several new operational processes, among other initiatives. The “Innovate” theme seeks to continuously develop its product offerings and applying technology. The “Grow” aspect focuses on increasing inorganic investments and adding scope thorough acquisitions. This strategy will fuel growth in the years to come.

Factoring in improved market conditions and operational execution, Terex now expects earnings per share for 2021 in the range of $2.35 and $2.55, higher than the previous guidance of $1.95 to $2.35. The guidance suggests a substantial improvement from the earnings of 13 cents reported in 2020. The company projects sales to be $3.7 billion in 2021, up from its previous expectation of $3.45 billion. The updated sales growth guidance indicates year-over-year growth of 20%.

Terex’s Aerial Work Platforms segment will gain from the right-sizing cost structure to align with customer demand, operational execution, strengthening global footprint and innovative new products over the long haul. The company anticipates segment sales in 2021 to be $2,125 million, up 19% from the $1,783 million seen in 2020, on improving end markets.

In the Material Processing segment, a robust product pipeline, expansion into newer geographies, delivering innovative products and continued strong execution position the segment well for growth. Given a strong end-market demand, the segment is anticipated to report net sales of around $1,550 million, reflecting year-over-year growth of 23%.

In addition, the company is focused on maintaining a solid liquidity and cash position, positioning it well to navigate through the global health crisis. Terex continues to invest in innovative products and expansion of manufacturing facilities to fuel growth.

Bottom Line

Investors might want to hold on to the stock, at present, as it has ample positive prospects of outperforming peers in the near future.

Stocks to Consider

A few better-ranked stocks in the industrial products sector are Tennant Company TNC, Encore Wire Corporation WIRE and Arconic Corporation ARNC. All of these stocks sport a Zacks Rank #1, at present.

Tennant has an expected earnings growth rate of 49.5% for the current fiscal year. The company’s shares have gained around 18% year to date.

Encore Wire has an estimated earnings growth rate of 49.5% for the current fiscal year. Year to date, the company’s shares have rallied nearly 36%.

Arconic has a projected earnings growth rate of 447% for the current fiscal year. The stock has appreciated around 21% so far this year.

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