Terex to Benefit from Increased Infrastructure Spending

We originally recommended Terex Corp. (NYSE: TEX) on May 16, 2008 at $71.48. The stock closed Friday at $12.67. (All figures in U.S. dollars.)

All the machinery companies, and Terex in particular, were hit hard in the market crash. Since the March lows, the stock has doubled but it still has a long way to go before it reaches its highs of last year.

The company just completed a significant financing of $612 million. The good news is they got it done easily and the offering was oversubscribed. So Terex should now be in a strong cash position while it waits for business to pick up.

The company announced a first-quarter loss of $74.9 million (79c a share), which was much worse than analysts were expecting. Sales also came in below expectations and off 45% from a year ago (37% after exchange rate adjustments). Terex said it expects a fall-off in sales on the order of 40% to 45% for fiscal 2009. Despite this, the company forecast a profit in the second half of the year.

As infrastructure spending continues to ramp up, Terex and the rest of the machinery companies will benefit. I don't think there's a big hurry here but I suggest you consider adding to your position if you didn't sell before the market collapsed. If you do not own the stock, enter now with a small position which you can add to over the next few months.

Action now: Buy with a target of $20.

Comments

[Sunil Shah:]

The Fantuzzi acquisition is the biggest blunder I have encountered in years. Mgmt could have walked away, with no penalty, but decided on some 18th century notion of integrity, they would jeopardise the entire company and proceed to buy a loss making entity that represented almost 20% of their entire market worth. Loved the company and its niched foray into infrastructure, but with bozos like that in command, Terex is destined to become a T-Rex during this downturn.

Watch out below.

Jun 22 11:47 AM

[Stone Fox C...:]

The fact they expect to be profitable even with that huge drop in orders shows that they'll be a serious company in the next upturn. As the author suggests now is the time to be building positions.

Jun 23 04:34 PM

[j_remington:]

There is alot of unbridled optimism about the 2nd half of 2009. Infrastructure spending will be spread out over the next 5-10 years. Depending on the government for revenues is not prudent at the moment.

Jul 15 12:53 PM