Shares of Terex Corp. (TEX) reached a new 52-week high of $37.12 on Friday, May 31, 2013. Shares were driven to the new high primarily by expected benefits from debt repayment, positive outlook for the Aerial Work Platform and Cranes segments, consistent free cash flow and restructuring initiatives.
This global manufacturer of a broad range of construction and mining related capital equipment has delivered a robust one-year return of about 127.2% and year-to-date return of about 27.61%, outperforming the S&P 500. Average volume of shares traded over the last three months was approximately 2.3 million shares.
Terex has delivered positive earnings surprises in two of the last four quarters with an average surprise of 1.98%. This Zacks Rank #3 (Hold) stock has a market cap of $3.99 billion and a long-term expected earnings growth rate of 9.33%.
Terex’ Strengths
The outlook for Aerial Work Platform segment remains strong on the back of strong replacement demand and equipment rental. Rental fleet operators tend to replace their fleet when it becomes too old and expensive to maintain. The equipment rental market has been strong in recent years given the low contractor visibility; and there is a growing shift toward renting rather than owning. Approximately 90% of the segment’s sales can be attributed to rental companies
The Cranes segment will benefit from the imminent recovery in U.S. construction. Terex’s cash flow remains strong and the company continues to focus and reduce its debt and improve its overall capital structure. Furthermore, Terex has embarked on a restructuring plan, and is planning to either close or sell several of its businesses, which will lead to cost savings in the near future.
Weak 1Q13 Earnings, But Improved Outlook
Terex’s first-quarter 2013 adjusted earnings of 23 cents per share declined 21% from 29 cents earned in the year-ago quarter. However, backlog for orders to be fulfilled during the next twelve months increased 13% sequentially and 10% over the prior year to around $2.166 billion at first-quarter 2013 end fueled by strong demand for Aerial Works Platform products.
Terex maintains its 2013 earnings per share forecast range of $2.40 and $2.70 and net sales between $7.9 billion and $8.3 billion. The company expects to generate more than $500 million in free cash flow during the year and remains committed to reducing its debt.
The Zacks Consensus Estimate for 2013 is currently at $2.54 per share, reflecting a 38.8% year-over-year growth and within the company’s guidance.
On May 16, Terex announced that it has repaid $220 million of its senior term bank debt due 2017, reflecting its continued focus on improving its capital structure. The company added that it will repay another $30 million of debt in July. This will result in total debt repayment of approximately $500 million from the middle of 2012 through the middle of 2013.
Other Stocks to Consider
Other stocks in the machinery industry that are currently performing well and have a good visibility include H&E Equipment Services Inc. (HEES) Alamo Group, Inc. (ALG) and CNH Global NV (CNH), all carrying Zacks Rank #2 (Buy).
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