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On Sep 24, we upgraded our recommendation on global equipment maker Terex Corp. (TEX - Analyst Report) to Neutral.

Why the Upgrade?

On Jul 24, Terex reported adjusted earnings of 65 cents per share for the second quarter of 2013, down 13% from 75 cents earned in the year-ago quarter but ahead of the Zacks Consensus Estimate of 54 cents. Revenues also declined 5% year over year to $1.91 billion, missing the Zacks Consensus Estimate of $1.99 billion.

Terex, a Zacks Rank #3 (Hold) stock, remains on track with internal cost reduction initiatives in the Materials Handling and Port Solutions (MHPS) and Crane businesses. The divestiture of businesses and its focus on reducing overhead and complexity within the Construction segment are expected to aid results going ahead.

Notably, MHPS will be benefited by significant revenue visibility in 2014 given three large port automation projects (two at Rotterdam and one at Long Beach) currently in the backlog. The outlook for the Aerial Work Platform segment remains strong on the back of encouraging replacement demand and equipment rental.

In addition, Terex boasts a strong cash flow and sticks to its strategy of deleveraging by reducing debt and improve overall capital structure. The company also remains committed to increase its presence in developing markets.

However, Terex lowered its earnings per share guidance for 2013 to $1.90–$2.10 from $2.40–$2.70 due to softer market conditions in its Construction, MHPS and to a lesser extent Cranes businesses. Pricing pressure, slower-than-anticipated construction recovery and adverse currency fluctuations will likely remain headwinds for the company in the upcoming quarters.

Following the last earnings release, the Zacks Consensus Estimate has gone up 1.5% to $2.00 per share for 2013, but is down 3.6% for 2014 to $2.95 a share.

Other Stocks to Consider

Among the other stocks in the industrial products sector with favorable Zacks rank, Alamo Group, Inc. (ALG - Snapshot Report), Lonking Holdings Ltd. and Lindsay Corporation (LNN - Analyst Report) are worth a look. While Alamo Group holds a Zacks Rank #1 (Strong Buy), both Lonking and Lindsay carry a Zacks Rank #2 (Buy).

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