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Terex (TEX) Rallies 15.5% YTD: What's Driving the Stock?

Zacks Equity Research

Shares of Terex Corporation TEX have rallied 15.5% year to date, fueled by upbeat fourth-quarter 2018 results and 2019 outlook. The company is well positioned to deliver stellar 2019 results, driven by focus on the Execute to Win strategy, favorable global markets, backlog strength and capital-allocation strategy.

Terex, a Zacks Rank #1 (Strong Buy) stock, has a market cap of roughly $2.24 billion. The company has an expected long-term earnings per share growth rate of 9.42%.

The company outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average positive earnings surprise being 14.77%. The stock’s 15.5% year-to-date rise outperformed the industry’s growth of 4.1%.

Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation.

Strong Q4: Terex’s fourth-quarter 2018 adjusted earnings per share and revenues climbed 55% and 16%, respectively, on a year-over-year basis, and beat the Zacks Consensus Estimate.
Upbeat Outlook: The company expects to achieve EPS between $3.60 and $4.20 in the current year, reflecting year-over-year improvement of 45%. Terex projects net sales of around $4.7 billion. Moreover, it is well on track to conclude the Demag Mobile Crane sale and exit the mobile-crane product lines in 2019, which will likely drive Terex's operating results.

Positive Growth Projections: The Zacks Consensus Estimate for Terex’s 2019 earnings is currently pegged at $3.78, reflecting year-over-year growth of 39.4%. The same for 2020 stands at $3.92, indicating a year-over-year rise of 3.8%.

Driving Factors

Terex’s Execute to Win strategy is focused on boosting capabilities by investing in people, processes and tools in three priority areas, and comprising commercial excellence, lifecycle solutions and strategic sourcing. The company is well poised to benefit from the continued implementation of Execute to Win initiatives in 2019. For this, Terex has approved an investment in its Utilities business to build a new facility in Watertown. This state-of-the-art manufacturing center meets the growing needs of utility customers.

Terex’s Aerial Work Platforms (AWP) segment will gain from strong global markets, operational execution and innovation. Macroeconomic fundamentals and customers’ feedback hint at a multi-year growth period for this segment. The company expects its AWP segment, which now includes Terex Utilities, to achieve an operating margin of 10.5-11.5% in 2019. Net sales in this segment are estimated to be up 3-6% on a comparative basis, with a mid-point of approximately $3.1 billion. Therefore, the AWP segment’s prospects look bright for the year.

With favorable markets and a significantly higher backlog than last year, the Material Processing (MP) segment is well poised for growth in 2019. Further, rising global demand for crushing and screening equipment, spurred by economic growth, construction activity and aggregate consumption, bodes well. Demand for Fuchs, material handlers and broad line of environmental products continues to rise in global markets, which is anticipated to fuel this segment’s growth. The segment’s operating margin is projected at 13-13.5% for 2019, while sales growth is estimated to be up 2-6% on a comparative basis.

Terex’s backlog grew year over year across every segment in the fourth quarter of 2018. Its total segment backlog climbed 19% year over year in the quarter. The AWP segment entered 2019 with a backlog, including utilities, of $1.1 billion, up 21% from the prior-year quarter. Further, backlog soared 55% year over year in the MP segment, reflecting robust market momentum. Consequently, improving backlog along with an impressive global market environment is likely to benefit the company in 2019.

Moreover, Terex continues to execute its disciplined capital-allocation strategy. In 2018, the company repurchased 11.4 million shares and returned $425 million to shareholders. Last July, it announced the completion of the February 2018 authorization and its board of directors authorized repurchase of up to an additional $300 million of Terex’s outstanding shares. Additionally, management has approved the 10% hike of its quarterly dividend to 11 cents in 2019.

Terex Corporation Price and Consensus

Terex Corporation Price and Consensus | Terex Corporation Quote

Other Stocks to Consider

Some other top-ranked stocks in the Industrial Products sector are Mueller Industries, Inc MLI, Lawson Products, Inc. LAWS and Albany International Corp. AIN, each sporting Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mueller Industries has an expected earnings growth rate of 2.2% for 2019. The company’s shares have rallied 19.6% over the past year.
Lawson Products has an impressive projected earnings growth rate of 102.5% for the current year. The stock has appreciated 18.9% in a year’s time.
Albany International has an estimated earnings growth rate of 44.7% for the year. The company’s shares have gained 12.5% in the past year.

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