Tuesday, Terex Corporation (NYSE:TEX), a manufacturer with significant exposure to the U.S. non-residential construction market, was downgraded from Buy to Neutral by UBS, although its price target was slightly increased to $62 from $61. The adjustment reflects the firm's analysis of the market's growth prospects and the company's future performance.
UBS's assessment indicates that the U.S. non-residential construction sector has entered a period of slower growth. The firm does not anticipate a resurgence in spending in this area over the next one to two years. It cites cyclical challenges in commercial construction as a limiting factor for growth in 2024 and notes that comparisons to previous years will be difficult, given the significant increase in manufacturing non-residential spending from $82 billion in 2021 to $196 billion in 2023.
Despite these headwinds, UBS suggests that government programs and structural investments will provide some stability, preventing a decline in spending and leading to a plateau instead. Sales are expected to remain relatively flat for the next two years, with earnings per share (EPS) projected to grow at a compound annual growth rate (CAGR) of 1-2% through 2025.
The firm acknowledges Terex's improvements and effective management over the past five years and expresses confidence in the continued leadership of new CEO Simon Meester and his team. However, due to the forecasted limited organic earnings growth and a balance of potential risks and rewards, UBS has assigned a Neutral rating to Terex shares.
InvestingPro Insights
Amidst the market's evolving dynamics, Terex Corporation (NYSE:TEX) presents a mixed picture that balances fundamental strength with market headwinds. Notably, the company boasts a perfect Piotroski Score of 9, indicating a robust financial position, which can be reassuring for investors considering the cyclical challenges in the construction sector. This strength is further underscored by a steadfast commitment to shareholder returns, as evidenced by a dividend growth streak extending over the last three years.
On the valuation front, Terex is trading at a low P/E ratio of 7.72, which suggests that the stock may be undervalued relative to near-term earnings growth prospects. This is complemented by a Price/Earnings to Growth (PEG) ratio of 0.1 for the last twelve months as of Q4 2023, hinting at potential for growth at a reasonable price. Additionally, the company's solid financial performance is reflected in its revenue growth of 16.61% over the same period, demonstrating its ability to expand amidst industry challenges.
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