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Why Should You Hold on to Terex (TEX) Stock Right Now?


Terex Corporation TEX has been witnessing upward estimate revisions over the last 60 days. The Zacks Consensus Estimate for earnings moved up 19.8% to $1.15 for 2017 and 16.9% to $1.94 for 2018. A bullish trend in estimate revisions reflects optimism over the company’s bright prospects.

Terex currently carries a Zacks Rank #3 (Hold) with an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores (Value – B, Growth – A, Momentum – B). Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of B, along with some other key metrics, makes the company a solid choice for investors.

Terex outpaced the Zacks Consensus Estimate in three out of the trailing four quarters, delivering an outstanding average positive earnings surprise of 122.78%.

Its share price performance also remains impressive. In the past year, the company has outperformed the industry it belongs to. The stock has gained 85%, while the industry recorded growth of 45.8%.

Here’s what might drive the stock higher and why investors should hold on to the stock.

Cheap Valuation

Terex’s trailing 12-month EV/EBITDA ratio is 19.1, while the industry's average trailing 12-month EV/EBITDA is 11.4. Consequently, the stock is cheaper at this point based on this ratio.

Sales/Assets Ratio (S/TA)

Currently, the company has a S/TA ratio of 0.91 which means that it gets 91 cents in sales for each dollar in assets Comparing this to the industry average ratio of 0.53, we can say that Terex is a bit more efficient than the industry at large.

Higher Inventory Turnover Ratio

In the trailing 12 months, the inventory turnover ratio for Terex has been 3.9% compared with the industry’s level of 3.1%. A higher inventory turnover than the industry average indicates that inventory is sold at a faster rate, suggesting inventory management effectiveness.

Positive Growth Projections

The Zacks Consensus Estimate for earnings for 2017 reflects year-over-year growth of 30.7% and 120% for 2018. Further, the company’s long-term earnings growth rate of 19.6% holds promise.

Growth Drivers in Place

The company will continue to benefit from progress on its transformation program. It continues to simplify the company, implementing footprint and cost-restructuring plans. Its commercial excellence initiative continues to make progress. The company remains focused on enhancing performance-management tools and improving process discipline in sales pipeline and account management.

The North American market for Aerial Work Platforms (“AWP”) equipment is improving. The Cranes segment returned to profitability in the second quarter, led by the benefits from restructuring actions and the company expects this trend to continue. Its Materials Processing segment is also progressing well.

In addition, the company will continue to execute disciplined capital allocation strategy and return capital to shareholders. This disciplined capital allocation strategy, including the efficient return of capital to shareholders through share repurchases, will drive growth.

Bottom Line

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

Stocks to Consider

Better-ranked stocks in the industrial product space include China National Materials Company Limited CASDY, Komatsu Ltd. KMTUY and H&E Equipment Services, Inc. HEES.

China National Materials has an expected long-term earnings growth rate of 20% and flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Komatsu, also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 12.7%.

H&E Equipment Services carries a Zacks Rank #2 (Buy) and has an expected long-term earnings growth rate of 10.1%.

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