On Dec 31, Zacks Investment Research upgraded Terex Corp. (TEX), a global equipment maker, to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
On Oct 23, Terex reported third-quarter 2013 adjusted earnings of 77 cents per share, a 24% improvement year over year, mainly due to reduced interest expense and a lower effective tax rate. The results also surpassed the Zacks Consensus Estimate of 58 cents.
Backlog for orders to be filled during the next 12 months was around $1.8 billion as of Sep 30, 2013, a 7% rise year over year. Strong demand for Associated Wire Products (AWP) together with large port equipment orders for Material Handling & Port Solutions (MHPS) led to the increase.
Total debt of the company decreased to $1.8 billion as of Sep 30, 2013 from $2 billion as of Dec 31, 2012. The company expects more than $400 million in free cash flow during the year and remains committed to reducing its debt.
In addition, starting from 2014, Terex intends to realize benefits, from its actions undertaken in the third quarter to further adjust the cost structure of the MHPS and the Cranes and Construction segments.
This month Terex announced its plans of selling its truck business. The decision to offload this unit is part of Terex’s efforts to transform into a lifting and material handling solutions company. The truck business will be sold for $160 million to Volvo Construction Equipment.
Terex also declared the initiation of quarterly dividends and a share repurchase program. Its Board approved an initial quarterly dividend of 5 cents per share which was paid on Dec 20, 2013, to shareholders of record as of Dec 16, 2013. Terex intends to pay four quarterly dividends of 5 cents a share, for an aggregate of 20 cents per share, for 2014.
Additionally, Its Board sanctioned a buyback of shares worth up to $200 million till Dec 31, 2015. The dividend initiation and buyback is in line with Terex’s commitment to return wealth to shareholders and reflects its long-term growth potential and strong financial profile.
In the near term, strong backlog in the MHPS segment is likely to aid results. The company also expects to benefit from recovery in the construction sector.
Other Stocks to Consider
Other players in the farm and construction machinery industry, which look attractive at current levels, include Kubota Corporation (KUBTY), Alamo Group, Inc. (ALG) and H&E Equipment Services Inc. (HEES). While Kubota carries a Zacks Rank #1, both Alamo Group and H&E Equipment Services hold a Zacks Rank #2 (Buy).
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