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Terex (TEX) Plunges 35% Year to Date: Turnaround Likely?

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Terex Corporation (TEX - Free Report) has faced multiple headwinds in the form of challenges in the Cranes segment, higher input costs and adverse currency fluctuations so far in 2018. These hurdles also affected the company’s recently-reported third-quarter 2018 results and further dented investor sentiment.

Terex missed the Zacks Consensus Estimate for third-quarter earnings and revenues. The company lowered its adjusted EPS guidance for the current year to $2.60-$2.70 due to lower-than expected third-quarter results.

Consequently, shares of the company have plunged around 35% on a year-to-date basis, which is wider than the industry's decline of 21%. However, the company has enough potential for revival, given the strength of its Aerial Work Platforms (AWP) segment, focus on Execute to Win strategy and solid backlog.


Let’s have a deeper look into the driving factors.

What's Pulling the Stock Down?

Terex’s Cranes segment witnessed supply-chain challenges in mobile crane operations during the first three quarters of 2018. Notably, the segment’s operating results were unfavorably impacted by disruption in the mobile cranes factory caused by material shortages. It will suffer an operating loss margin of 2.3% for the full year, down from the previous estimate of an operating loss margin of 1-1.5% for 2018. Further, the company guides sales growth of 11% for the year, lower than its previous expectation of growth of 13%.

Further, pricing and steel cost headwinds remain concerns for Terex’s margin performance. Steel price has escalated significantly since first-quarter 2018 due to the imposition of tariffs on certain steel imports. Another major headwind is the implementation of new tariffs on certain Chinese imports since July 2018. This could result in significant price increases in materials and components. Inability of the company to pass on the increase by implementing price hikes might not always be feasible due to the competitive environment, which will likely depress its margins.

Not a Broker Favorite

Terex’s earnings estimates underline pessimism surrounding the stock. The company has witnessed the Zacks Consensus Estimate for current-quarter earnings being revised 32% downward, in the last 30 days. Also, earnings estimates for 2018 have moved 9% south during the same time frame.

Can Terex Turn Around Anytime Soon?

Terex’s AWP segment will gain from upbeat global markets, operational execution and innovative new products. The company expects that its AWP segment will achieve an operating margin of between 10.5% and 11.0% in 2018, and net sales growth of 22%. The prospect for the AWP segment looks strong, for the balance of 2018 and beyond.

Notably, Terex’s Execute to Win strategy is focused on improving capabilities by investing in people, processes and tools in three priority areas, comprising commercial excellence, lifecycle solutions and strategic sourcing. In order to simplifying the company, Terex remains focused on improving performance and meeting the rising customer demand. For this, it recently approved an investment in the Utilities business to build a new facility in Watertown. Terex has also implemented a new operational financial-management system which will provide a continued view of internal financial information across its businesses.

For the seventh quarter in a row, Terex’s backlog grew year over year in every segment. Its total segment backlog surged 41% year over year in the Sep-end quarter. Consequently, improving backlog, along with an enhanced global market & environment, positions the company well for 2018.

Zacks Rank & Stocks to Consider

Terex currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the same industry include Enersys (ENS - Free Report) , CECO Environmental Corp. (CECE - Free Report) and Flowserve Corp. (FLS - Free Report) . While Enersys flaunts a Zacks Rank #1 (Strong Buy), CECO and Flowserve carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Enersys has a long-term earnings growth rate of 10%. Its shares have rallied 20% year to date.

CECO has a long-term earnings growth rate of 15%. The company’s shares have surged 52% year to date.

Flowserve has a long-term earnings growth rate of 17.3%. The stock has gained 10% year to date.

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