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Zacks Industry Outlook Highlights Caterpillar, Hitachi Construction Machinery, H&E Equipment Services, and Terex

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For Immediate Release

Chicago, IL – October 26, 2022 – Today, Zacks Equity Research discusses Caterpillar Inc. (CAT - Free Report) , Hitachi Construction Machinery Co., Ltd. (HTCMY - Free Report) , H&E Equipment Services, Inc. (HEES - Free Report) and Terex Corp. (TEX - Free Report) .

Industry: Construction and Mining


The Zacks Manufacturing - Construction and Mining industry is facing near-term challenges in the form of supply-chain constraints and flared-up input costs. The recent contraction in orders due to customers being cautious about their spending amid growing fears of a global economic slowdown, adds to the woes.

Industry players like Caterpillar Inc., Hitachi Construction Machinery Co., Ltd., H&E Equipment Services, Inc. and Terex Corp. are well-poised to gain despite the aforementioned headwinds, thanks to their cost-cutting efforts and investment in digital initiatives.

About the Industry

The Zacks Manufacturing - Construction and Mining industry comprises companies that manufacture and sell construction, mining and utility equipment. They support customers using machinery in the construction of commercial, institutional and residential buildings, and infrastructure projects. Their equipment is also utilized in underground mining, drilling and mineral processing, and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold, and other minerals and ores.

Their products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing & screening equipment, tractors and cranes. The industry participants support oil and gas, power generation, marine, rail, and industrial applications through their reciprocating engines, generator sets, gas turbines and turbine-related services.

4 Trends Shaping the Future of Manufacturing - Construction and Mining Industry

Recent Slowdown in Manufacturing Activity a Concern: Per the Federal Reserve, industrial production rose a meager 0.4% in September 2022, following a 2.9% growth (at an annual rate) in the third quarter of 2022. Manufacturing output moved up 0.4% in September. The index increased 1.9% at an annual rate in the third quarter, decelerating from the 3.2% gain posted in the second quarter. In September, the Institute for Supply Management's (ISM) manufacturing index registered 50.9%.

Even though the reading indicates expansion for the 28th month in a row, it was the lowest since the reading of 43.5% in May 2020. The New Orders Index dipped to 47.1% in September 2022 from 51.3% recorded in August 2022. With a reading below 50, the index entered the negative territory and was at its lowest level since May 2020, when it registered 32.3%.

This indicates that customers seem to be putting their reins on spending amid growing concerns of a global economic slowdown. Also, some companies are unable to accept new orders due to the ongoing shortage of parts and supply-chain snarls.

Demand in Mining & Construction to Remain Strong: The intensifying global focus on shifting from fossil fuels to zero emissions will require a large number of commodities, which in turn, will support demand for mining equipment in the years to come. The U.S government's plans to increase investment in infrastructure construction — particularly in critical subsectors, such as transportation, water and sewerage, and telecommunications — will support demand in the coming years.

Cost Inflation & Supply-Chain Issues Persist: The industry is currently facing input cost inflation (mainly steel), transport and logistic costs. It has been struggling for a while to keep pace with the increase in demand due to the shortage of labor, supply-chain issues, high raw material lead times and continued crises of critical materials. The industry players are making an all-out effort to bolster their financial condition, conserve cash and improve profitability.

The companies are constantly implementing cost-reduction actions, which are likely to help sustain margins in this scenario. The companies are focused on streamlining their operations and realigning around high-growth key markets or customer segments to enhance their performances.

Investment in Digital Initiatives to be a Game Changer: The industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids organizations in boosting productivity and increasing efficiency, reliability and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery. Thus, the players in the Manufacturing - Construction and Mining industry are stepping up their research and technological capabilities to bring products into the market equipped with the latest technology.

Zacks Industry Rank Indicates Dim Prospects

The group's Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates dull prospects in the near term. The Zacks Manufacturing - Construction and Mining industry, a seven-stock group within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank#155, which places it at the bottom 38% of 251 Zacks industries.Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let's look at the industry's recent stock-market performance and the valuation picture.

Industry Versus Broader Market

The Manufacturing - Construction and Mining industry has outperformed its sector and the Zacks S&P 500 composite over the past year. Over this period, the industry has declined 7.3% compared with the sector's decrease of 18.8%. The Zacks S&P 500 composite has fallen 17.8% in the same time frame.

Industry's Current Valuation

On the basis of the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Manufacturing - Construction and Mining companies, we see that the industry is currently trading at 8.99 compared with the S&P 500's 9.76 and the Industrial Products sector's trailing 12-month EV/EBITDA of 13.72.

Over the last five years, the industry has traded as high as 14.83 and as low as 7.04, with the median being at 10.22.

4 Manufacturing - Construction & Mining Stocks to Watch

Hitachi Construction Machinery: HTCMY is developing a wide range of technologies to realize the autonomous operation of ultra-large hydraulic excavators at mines. It recently announced that it will showcase its full lineup of battery-powered mini and compact excavators at bauma 2022 to capitalize on growing demand for battery-powered electric hydraulic excavators for use in construction work in the European market.

HTCMY is also strengthening its focus on value-chain businesses other than new machinery sales, such as parts and services, rentals, used equipment and parts recycling. Plus, it is utilizing digital technologies to provide solutions at all points of contact with customers. Shares of Hitachi Construction Machinery have declined 21% in the past three months.

Headquartered in Tokyo, Japan, Hitachi Construction Machinery  with its subsidiaries engages in the development, manufacturing, sales and service operations of hydraulic excavators, wheel loaders, road construction machines and mining machinery worldwide. The Zacks Consensus Estimate for HTCMY's current-year earnings has moved up 1% over the past 60 days. It has a trailing four-quarter earnings surprise of 245%, on average. The stock currently carries a Zacks Rank #2 (Buy).

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Caterpillar: CAT's revenues and earnings have been growing year over year for six straight quarters, thanks to its cost-saving actions, strong end-market demand and pricing actions. Caterpillar's backlog was a solid $28.4 billion at the end of the second quarter of 2022, which will boost its top line in the upcoming quarters. CAT is anticipated to gain from strength in residential construction and non-residential construction in the United States, and robust demand for mining equipment.

Caterpillar continues to focus on customers and the future by constantly investing in digital capabilities, connecting assets and job sites, and developing the next generation of more productive and efficient products, providing it a competitive edge. The stock has gained 6% in the past three months.

Known for its iconic yellow machines, Caterpillar is the largest global construction and mining equipment manufacturer. The Zacks Consensus Estimate for CAT's ongoing-year earnings indicates year-over-year growth of 18%. The estimate has moved up 1% over the past 60 days. CAT has a trailing four-quarter earnings surprise of 13%, on average. CAT has an estimated long-term earnings growth rate of 12%. The stock currently carries a Zacks Rank #3 (Hold).

H&E Equipment Services: The sale of its crane business executed last year makes it a pure-play rental business and poises it well for continued expansion in the equipment rental business. HEES will gain from its acquisition strategy, which focuses on identifying and acquiring rental companies to complement its existing business, broaden its geographic footprint and increase density in the existing markets.

H&E Equipment Services recently acquired One Source Equipment Rentals Inc., adding 10 equipment rental locations to its branch network, including initial locations in Illinois, Indiana and Kentucky. The buyout will add approximately $138 million to the fleet, as measured by the original equipment cost. At the end of the second quarter of 2022, the company had recorded fleet original equipment cost (OEC) of more than $2 billion. Efforts to grow its Parts and Services operations will yield results, as it is a relatively stable high-margin revenue source. It also aids in developing customer relationships, attracting customers and maintaining a high-quality rental fleet. Shares of HEES have gained 3.8% over the past three months.

Baton Rouge, LA-based H&E Equipment Services is one of the largest integrated equipment services companies in the United States. The Zacks Consensus Estimate for this year's earnings indicates growth of 42.6% from the year-ago quarter's reported figure. HEES has a trailing four-quarter earnings surprise of 45.9%, on average. H&E Equipment Services has an estimated long-term earnings growth rate of 19.7%. The stock currently carries a Zacks Rank of 3.

Terex: TEX has been delivering year-over-year growth in earnings over the past six quarters, supported by robust bookings, revenue growth and a margin expansion in both business segments. Its backlog has been on an uptrend over the past seven quarters and was a record $3.47 billion at the end of the second quarter of 2022. This, along with solid demand, pricing and cost-saving actions, positions the company well for improved results.

TEX is progressing well on its "Execute, Innovate, Grow" strategy that will drive growth. In sync with this, it is investing in innovative products, digital innovation, manufacturing facility expansion and acquisitions. Shares of TEX have gained 9% over the past three months.

Norwalk, CT-based Terex manufactures and sells aerial work platforms and materials processing machinery worldwide. The Zacks Consensus Estimate for current-year earnings indicates growth of 29.6% from the prior-year reported figure. TEX has a trailing four-quarter earnings surprise of 31.7%, on average, and an estimated long-term earnings growth rate of 16.5%. The stock carries a Zacks Rank #3 at present.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit  for information about the performance numbers displayed in this press release.

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