We have issued an updated research report on Terex Corporation TEX on Apr 8, 2015. Performance of this global equipment manufacturer will be hurt by adverse currency translation, challenges in the Construction and Cranes business, volatile oil & gas prices and increased exposure to political and monetary instability.
On Feb 17, Terex reported fourth-quarter 2014 adjusted earnings of 72 cents per share which improved 10.8%on a year-over-year basis. For 2015, the company expects adjusted earnings per share to be in the range of $2.00 to $2.30 and net sales in the band of $6.2–$6.6 billion. Operating margins are anticipated to be in the 7% to 7.5% range.
Terex remains concerned that currency fluctuations and the ASV (a wholly owned subsidiary of Terex) disposition will negatively affect net sales between $650 million and $750 million and earnings per share between 15 cents and 20 cents. Further, the combination of lower Material Handling & Port Solutions (MHPS) sales due to the lack of large port automation projects as well as some headwind assumptions associated with the oil and gas markets will also hurt the company’s growth.
Notably, Terex Cranes’ performance was disappointing in 2014 and the company failed to realize the projected growth for the segment due to global marketplace weakness and increased competition. Despite a positive trend in book-to-bill ratios through the first half of 2014, Cranes order rate dropped significantly in the second half of the year. The decline was because of weak demand for mobile cranes. In 2015, Terex expects net sales to decrease, primarily due to strengthening of the U.S. dollar, although underlying demand is expected to be stable.
Terex’s sales are driven by replacement equipment and the company is not expecting much growth from non-residential construction. Though the Architecture Billings Index (ABI) score of 50.4 was up in February from a mark of 49.9 in January, architecture firms remain concerned about finding quality contractors for projects as well as volatile construction materials costs. Further, geographical uncertainty especially in markets like Russia and Ukraine remains headwind.
Additionally, Terex’s manufacturing expansion in lower-cost countries (like China and India) will increase exposure to political and monetary instability. Adverse changes in government regulation and relatively weaker enforcement of intellectual property rights would hurt the company’s growth. Moreover, pricing pressure, adverse currency fluctuations, commodity price volatility and competition remain headwinds in the near term.
This Zacks Rank #4 (Sell) stock has also witnessed downward estimate revisions over the last 60 days. The Zacks Consensus Estimate for 2015 and 2016 decreased roughly 17% to $2.20 per share and 20% to $2.69 per share, respectively.
Other Stocks that Warrant a Look
Stocks to consider at the moment include Multi-Color Corp. LABL, Landauer Inc. LDR and NSK Ltd. NPSKY. All of these stocks sport a Zacks Rank #1 (Strong Buy).
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