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Terex Banks on Execute to Win Plan and Backlog Strength


On May 15, we issued an updated research report on Terex Corporation TEX. The company is poised to gain from focus on the Execute to Win strategy, stable global crane markets, product development and backlog strength. Further, its disciplined capital-allocation strategy will reinforce investors’ value.

Let’s illustrate these growth factors in detail.

Terex to Gain From Execute to Win Strategy

Terex’s Execute to Win strategy is focused on improving capabilities by investing in people, processes and tools in three priority areas, comprising commercial excellence, lifecycle solutions and strategic sourcing. For this, the company recently approved an investment in its Utilities business to build a new facility in Watertown. This state-of-the-art manufacturing center will enable to consolidate from 10 buildings to one, and meet the growing needs of utility customers. Terex has also implemented a new operational financial management system under the plan which will provide a continued view of internal financial information across its businesses.

Crane Segment Well Poised for Growth

Terex’s Cranes segment will grow on fairly stable global cranes markets, with expected growth in the near future. The company reported increased sales and backlog in mobile cranes, tower cranes and utility equipment lately. It is working with customers to align machinery delivery dates and expect productivity to normalize in the second half of 2018.

The company also continues to roll out new products. Terex delivered the first AC 300-6 production unit in first-quarter 2018, the latest addition to the Demag line of all-terrain cranes. The company also introduced a flat top tower crane, the CTT 472, which will increase productivity of customers on the job site.

Backlog Strength a Tailwind

For the fifth quarter in a row, Terex’s backlog grew year over year in every segment in the first quarter 2018. Its total segment backlog climbed 54% year over year to $634 million. The AWP segment reported backlog growth of 43% year over year in the quarter. Further, orders in the first quarter were up 50% and backlog was up 77% in the MP segment, year over year, reflecting strong market momentum. Thus, solid backlog, along with an improving global market, positions the company well for 2018.

Focus on Capital-Allocation to Boost Performance

Terex continues to execute its disciplined capital-allocation strategy in 2018. The company repurchased 5 million shares for $205 million in the first quarter. Further buybacks will support the stock. Terex maintained its free cash flow guidance of $100 million for the year. It raised the capital expenditure outlook to $80 million, reflecting the utilities facility project and other targeted investments. The company reiterated its target to achieve a 20% or greater ROIC by 2020. ROIC is expected to improve to 16% in 2018. ROIC expansion values operational improvement and significant improvements made to Terex’s capital structure.

Share Price Performance

Terex has outperformed its industry with respect to price performance over the past month. The stock has gained around 5%, while the industry recorded growth of 1% during the same time frame.

Zacks Rank & Other Stocks to Consider

Terex sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the same sector are Caterpillar Inc. CAT, H&E Equipment Services, Inc. HEES and A. O. Smith Corporation AOS. While Caterpillar sports a Zacks Rank #1, H&E Equipment Services and A. O. Smith carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar has a long-term earnings growth rate of 13.3%. The stock has rallied 52% in a year’s time.

H&E Equipment Services has a long-term earnings growth rate of 17.4%. The company’s shares have appreciated 102% during the past year.

A. O. Smith has a long-term earnings growth rate of 12.2%. Its shares have been up 18% over the past year.

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