If the only "Tex" you're familiar with is followed by "Mex," it's time to put down the menu and pick up the financials. Terex Corporation(TEX) happens to be Stockleaf's "Stock Pick of the Week," and here are the down and dirty reasons it's making the spotlight (this week—the week of January 28, 2008).
First, who are these guys? Terex is currently the third largest manufacturer of construction equipment in the world. The global corporation operates in five business segments (Cranes, Construction, Aerial Work Platforms, Roadbuilding, Utility Products and Other, and Materials Processing & Mining) and eeked out $7.6 Billion in net sales in 2006. In short, if you work in construction, quarrying, shipping, refining, surface mining, transportation, or any other utility industry, you're probably already familiar with Terex's equipment.
Today the stock opened at $55.99, rather low within its 52-Week Range of $46.50 - $96.94. The stock price hit its peak last July, but worries that construction and infrastructure companies will struggle in the predicted European and U.S. downturn are still pushing the stock price down. Its one-year target price is estimated at $82.91 and it sports a P/E of 10.57. Despite the attractive P/E, Barron's is saying the stock is oversold considering TEX trades at 9.5 times its profits in 2007 and 8 times its projected 2008 profits ($6.70 a share).
Today, Terex announced its Terex Minnesota Inc. unit offered to buy all of ASV Inc., a company which manufactures rubber track undercarriages for heavy duty vehicles, for approximately $480.6 Million cash. ASV announced that it recommended shareholders accept Tex's offer to purchase all of ASV's nearly 26.7 million outstanding shares at $18 per share (a one percent premium to ASV's closing stock price on January 25). The offer, set on February 25, could be extended.
On January 16, Terex Corp. announced several new senior exec appointments in an effort to further its strategy to increase presence in global growth markets and attain the company's goal to growing the company's net sales to $12 Billion with a 12 percent operating margin only two short years from now—in 2010.
So why buy?
In addition to impressive growth goals and comparatively low P/E compared with similar companies in its sector, the word on the street is pretty positive when it comes to TEX. The folks at Bespoke Investment Group are quick to point out that Terex is one of the top 15 current S&P stocks in terms of growth since the start of the bull market in 2002. The company itself is solid. With 4,785,900 in current total assets, up from 4,179,100 in 2004 and total liabilities down to 3,034,900 from 3,043,900 in 2004, Terex Corp. has reduced its long term debt by more than half in only four years.
It's clear that the company itself is moving in the right direction, so the only question that remains is whether fears of a construction downturn will impede Tex's growth. At the level in which Terex operates, it's unlikely. If the world suddenly stopped building roads, schools, commercial buildings, hospitals, apartments and parking lots, or if the world stopped mining oil, diamonds and gold, then maybe. Although fallout from the unstable housing market will certainly have an affect on companies in the construction sector, indicators suggest that Terex will make it through unscathed and continue on its path to become the largest construction equipment manufacturer on the planet.
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