Terex Corp. ($TEX) has many positives for investors

Tuesday, December 16th, 2014

I have been looking for a good-value company that is not in the energy industry. Last week I received a phone call on my radio show about a company calledTerex Corporation (NYSE: TEX).

The company has a market cap of $3 billion; the stock has traded as low as $25.93 and as high as $45.46 over the past 52 weeks. The current stock price is around $27 per share and the company pays a 0.7% dividend.

 
The company is based in West Port, Conn., and makes farm and construction machinery. The company has a very interesting construction business and I highly encourage anyone who is considering investing in this company to visit the company website at www.terex.com.

Looking at the valuation ratios, we have a good start with the price earnings ratio over the past 12 months of 12.2, well below the industry average of 21.4.

Price to sales looks even better at 0.42, a quarter of the industry average of 1.85. Price to book value stays in line 

and looks extremely attractive at 4.8 versus the industry at 26.0. Price to cash flow is half the industry at 7.4 versus 16.4.

Sales for the company were up 8.5 percent year over year for the past 12 months, which is double the industry average of 4.2 percent. Earnings-per-share climbed 298 percent year over year for the last 12 months, well ahead of the industry average of 21.6 percent.

One area where the industry looks better than the company is return on equity, the industry checks in at 13.8 percent over the past 12 months, which is better than the company at 11.9 percent.

The balance sheet for Terex looks OK with a current ratio of 2.0, just under the industry average of 2.1. Total debt to equity is high for the company at 83.5, more than twice the industry average of 35.6. I noticed on the balance sheet that the company has paid off roughly $60 million in debt over the past year.

The net profit margin for the company could be better at 3.6 percent, compared to the industry at 8.7 percent. I would recommend researching why the cost of revenue increased nearly $100 million, compared to the same quarter in 2013.

I also noticed on the cash flow statement discontinued operations of $58.5 million and an increase in inventory costs of $40

million. These two things will be positives going forward, but it is important for the investor to understand what these are.

The efficiency of the company looks good when reviewing the receivable turnover coming in at 6.1 times over the past 12 months, which is favorable compared to the industry at 5.8 times. Inventory turnover could be better for the company, turning over 3.3 times, which is not as good, as the industry at 4.2 times.

Once again, the inventory question comes up. Why did their inventory costs increase $40 million?

The investor should find out if the company can sell that inventory at reasonable prices - or will it have to cut the prices on the excess inventory to get back to normal levels and will that hurt future profit margins.

There are quite a few analysts who follow this company, based on a market cap of $3 billion, 24 of them giving average earnings estimate for the year ending December 2015 of $2.77.

This is over 20 percent increase in earnings-per-share from the December 2014 earnings-per-share estimate of $2.30. It also puts the target sell price at $45.71, which is very close to the 52-week high that the company hit within the past year.

Doing the calculations, if the stock can return to $45.71 with the dividend, then the investor's return is 70 percent. I think a lot of 

the excitement has left and caused the stock to decline because 90 days ago, the mean estimate for earnings per share for the year ending December 2015 was $3.43.

I'm sure this caused investors to become disenchanted and the decline in potential earnings began selling off the stock, not realizing that the sell-off appears overdone and now investors are paying less than 10 times forward earnings.

It also could be due to the fact that the company missed its past three earnings estimates by as much as 17 percent. Therefore, earnings estimates are not to be trusted.

However, it has been my experience that what generally happens is the forward earnings estimates become too conservative and the company begins to beat those conservative estimates.

I also want to point out that the PEG ratio is very reasonable at 0.77, showing that investors are not paying much for this company's future growth.

The numbers tell me that this company has merit as an investment but, as always, my radio show, articles and newsletters are meant to point investors in the right direction and not as final research or a "buy" recommendation.

You, the investor, have to take it to the next level of research to verify that this company is worth investing your money.

Do you have a question or a company you'd like me to take a look at? Email me at Brent@WilseyAssetManagement.com!


Wilsey is president of Wilsey Asset Management and can be heard at 8 a.m. every Saturday on KFMB AM760. Information is provided by Reuters.

 

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