Shares of Terex Corporation (TEX Quick QuoteTEX - Free Report) have plunged 18% so far this year compared with industry’s growth of 20%.

 

 

Let’s take a look into the factors behind the dismal price performance.

 

Terex’s Cranes segment witnessed supply-chain challenges in mobile crane operations during the first half of 2018. Notably, the segment’s operating results were negatively impacted by disruption in mobile cranes factory, owing to material shortages. The company anticipates the Cranes segment to incur an operating loss in the third quarter as well given the supply disruption. Though the segment is expected to return to profitability in the fourth quarter, it will suffer an operating loss for the full year. The company guides the segment’s operating loss between 1% and 1.5% for fiscal 2018.

 

Further, Terex’s margin outlook is tempered by pricing and steel cost headwinds. The imposition of tariffs has resulted in significant price increases in materials and components. Given the competitive environment, it will not always be feasible for the company to pass on the increase by implementing price hikes. This is likely to dent its margins.

 

The estimates for the company for the third quarter of 2018 have consequently undergone negative revision in the past 90 days, reflecting the negative outlook of analysts. For the third quarter, the estimate has gone down 6% to 74 cents per share over the past 90 days.

 

Undoubtedly, the above negatives substantiate the company’s Zacks Rank #4 (Sell). Further, the company's stretched valuation is another concern. In case of Terex, the trailing 12-month price earnings (P/E) ratio is 16.8 while the industry's average trailing 12-month P/E ratio is pegged lower at 15.8. This implies that the stock is overvalued and consequently we caution the investors against entering the stock at this point.

 

 

Better-ranked stocks in the same industry include Atkore International Group Inc. (ATKR Quick QuoteATKR - Free Report) , Donaldson Company, Inc. (DCI Quick QuoteDCI - Free Report) and Flowserve Corporation (FLS Quick QuoteFLS - Free Report) . All three stocks sport a Zacks Rank #1 (Strong buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Atkore has a long-term earnings growth rate of 10%. The stock has gained around 25% in a year’s time.

 

Donaldson has a long-term earnings growth rate of 11.5%. The company’s shares have rallied around 25% over the past year.

 

Flowserve has a long-term earnings growth rate of 17.3%. Its shares have rallied 24% in the past year.

 

 

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