Terex (TEX) Stock Gains 33% YTD: What's Driving the Rally?

Shares of Terex (NYSE:TEX) Corporation TEX have been appreciating so far this year, courtesy of improved top and bottom-line performance in the three quarters of 2021 and an upbeat guidance for the current year. The company has been benefiting from strong demand as evident from robust backlog levels across both its segments. Focus on cost-control actions, strategic growth initiatives, investment in innovative products and digital innovation continue to aid the company. With the recent signing of the U.S infrastructure bill into law by President Biden, it represents a huge opportunity for the company in the days ahead.

Terex’s shares have gained 32.7% year to date compared with the industry’s growth of 13.2%. With a market capitalization of $3.07 billion, the average volume of shares traded in the last three months was 651k.

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Terex currently has a Zacks Rank #3 (Hold) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Driving Growth

Strong Backlog Levels: Terex has delivered year-over-year improvement in both revenues and adjusted earnings per share in all the three quarters of 2021. Its backlog has been improving and surged a whopping 237% year over year to $2,725 million in third-quarter 2021. Both the segments, Aerial Work Platforms (AWP) and Materials Processing (MP) have witnessed improvement in backlog over the past four quarters. End market demand is anticipated to remain strong for the remainder of this year and into 2022.

Upbeat 2021 Guidance: Terex expects earnings per share for 2021 in the range of $2.75 to $2.85, compared with earnings of 13 cents in 2020. This will be driven by improved results in both of its segments and cost saving actions in spite of ongoing supply chain, labor, freight and logistics challenges, and high input costs.

Strategies to Grow Business in Place: The company has made significant progress in its “Execute, Innovate, Grow” strategy. Per the “Execute” theme, the company continues the progress made with its “Execute to Win” by intensifying process discipline and implementing several new operational processes, among other initiatives. The “Innovate” factor emphasizes on continuously developing its product offerings and applying technology. Terex has invested in connected assets and digital capabilities to better serve customers. The Material Processing segment has launched 28 new products in 2021. The “Grow” aspect focuses on increasing inorganic investment and adding scope thorough acquisitions. This strategy will fuel the company’s growth in the years to come.

Terex’s Aerial Work Platforms segment is poised to gain from the company’s efforts to right-size its cost structure, in line with customer demand, operational execution, strengthening global footprint and innovative new products over the long haul. The segment is witnessing sustained solid global demand driven by fleet replacement and growth. In the Genie business globally, rental rates are rising, used equipment pricing remains strong, and fleet utilization continues to improve on the recovering aerials rental industry. The Utilities market is improving significantly aided by strong demand across its end-markets of tree care, rental, and investor-owned utilities.

In the Material Processing segment, robust end-market demand across minerals processing, material handling and lifting, environmental, and concrete will drive revenues. A solid product pipeline, expansion into newer geographies, innovative products, and sustained strong execution have positioned the segment well for growth.

Additionally, the company is focused on maintaining a solid liquidity and cash position. Through aggressive working capital management, Terex generated $183 million of free cash flow in the first nine-month period of 2021. The company anticipated geneerating more than $200 million of free cash flow in 2021. It repaid $429 million of term loans so far this year. As of the end of the third quarter of 2021, the company had around $1.2 billion of total available liquidity, with no near-term debt maturities. Its total debt-to-total capital ratio has gone down over the past few quarters and was at 0.46 as of Sep 30, 2021. The company’s times interest earned ratio was at 4.8 at the quarter end.

Others Industrial Stocks to Consider

Some better-ranked stocks in the Industrial Products sector include Berry Global Group (NYSE:BERY), Inc. BERY, Emerson (NYSE:EMR) Electric Co. EMR and Reliance Steel & Aluminum Co. RS. While BERY flaunts a Zacks Rank #1, EMR and RS carry a Zacks Rank #2.

Berry Global has an expected earnings growth of 2.6% for the current year. The consensus mark for its current-year earnings has gone up 17% over the last 60 days.

Berry Global has a trailing four-quarter earnings surprise of 16.5%, on average. It has a long-term estimated earnings growth of 10%. Its share price has gained 35% in the past year.

Emerson Electric has an expected earnings growth of 18.7% for the current year. The Zacks Consensus Estimate for EMR’s current-fiscal earnings has been revised upward by 7% over the last 60 days.

The company has a trailing four-quarter earnings surprise of 10.7%, on average. The company also has an estimated long-term earnings growth rate of 8.7%. EMR’s share price has gone up 14% in a year’s time.

Reliance Steel has an expected earnings growth of 162.5% for the current year. Over the past 60 days, the Zacks Consensus Estimate for its current-year earnings has been revised upward by 6%.

Reliance Steel has a trailing four-quarter earnings surprise of 4.4%, on average. Its share price has appreciated 28% over a year’s time.

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