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Manitowoc Company Inc. (NYSE:MTW) closed out last week trading at the 6-month high levels of $15. While the market envisions the company as a crane manufacturer that competes with Terex Corporation (NYSE:TEX), it currently obtains higher operating income from the food service division.

The company currently has a mark cap of $2B and only trades at 5x the trailing twelve months EBITDA of nearly $400M. With limited operating margins in the crane division, the company has yet to see any rebound from the global financial crisis.

The company faces similar margin issues as Terex in comparison to a mega-cap like Caterpillar (NYSE:CAT). In the last few months, a shift is occurring as stocks focused more on construction equipment have performed better than ones with mining exposure.

Operating Margins

As highlighted in a recent Terex article, Terex: Margin Improvements Are The Key To Stock Gains, the relatively low level of margins holds true for Manitowoc. The major difference is that the food service division already has strong operating margins at nearly 18% leaving incremental gains by the crane division as masked by that division.

While Manitowoc was only able to generate 5% operating margins in the crane division, Terex was able to double margins to 12% from last year. In total, Terex generated operating margins of 11.3% over vast sectors including construction equipment and aerial work platforms.

As mentioned in the Terex article, the big difference between Caterpillar and Joy Global (NYSE:JOY) was the vastly larger margins. Part of the divergence was the drastically more profitable mining sector within Caterpillar and naturally the complete focus on mining at Joy Global.

The below chart highlights the different operating margins for each firm:

MTW Operating Margin TTM Chart

MTW Operating Margin TTM data by YCharts

Earnings History

Another issue with Manitowoc is that the company has drastically missed estimates twice over the last three quarters. Oddly this hasn't held the stock back as normally would occur. See earnings history and trends below:

(click to enlarge)

The market expects a major earnings increase next year going from $0.73 to $1.32. With only 8% revenue growth expected, the company will need to achieve significant margin expansion.

Stock Valuation

As mentioned previously, the stock trades at a reasonable 5x trailing EBITDA making the stock attractive. The stock though trades at over 11x forward earnings, which is actually higher than the likes of Caterpillar and Terex.

The chart shows the potential for a major breakout above $15. The pattern is similar to one with Terex showing that the market now favors the stocks that will benefit from a housing rebound domestically.

1-Year Chart- Manitowoc

(click to enlarge)

Conclusion

The stock offers a potential attractive valuation at these levels. Anybody looking for a larger focus on the rebound in domestic housing or emerging market construction might find Terex the more appealing stock.

Either way, the potential exists for huge margin expansion as the company sees incremental revenue producing 20% operating margins. Unfortunately the company hasn't shown that ability to execute on improving margins.

For now, investors should wait until Manitowoc improves execution before adding to any positions at these levels.

Source: Manitowoc Remains Intriguing Though Not A Favorite

Additional disclosure: Please consult your financial advisor before making any investment decisions.