3 Solid Machinery Stocks You Must Own

Includes: LNN, MTW, TEX
by: Fusion Research

The manufacturing industry, especially the capital goods and agriculture equipment manufacturing companies, faced a downturn in the past years due to the global economic slowdown. Now that things are beginning to turn around, the industry is once again experiencing growth. After scouring the industry, three companies look particularly promising. These companies are adopting various strategies to deepen their foothold in the market worldwide in order to best capitalize on the improving economic conditions. How will these companies maximize the improving global conditions?

(We also recommend Caterpillar (CAT), please read - Does This Caterpillar Have 9 Lives To Survive The Industry Downturn?)

Equipment rental and replacement demand driving revenue

Terex's (NYSE:TEX) Aerial Works Platform segment, or AWP, reported year over year revenue growth of around 17.5% to $606.6 million in the second quarter of 2013. This segment rents equipment like scissor lifts, telescopic lifts, and articulating booms to construction, infrastructure, and shipping industries. Currently consumers prefer rented equipment over buying it, benefiting the company.

The North America market represents 68% of the company's total operation, and the ongoing construction activities in this region make Terex optimistic to grow its business here. The company enhanced its operations by combining its units Terex Equipment Services and Crane America Services to form "Terex Services" in growing regions like North America as well as emerging markets. This integration will operate under the AWP segment and presents clients with a powerful service network in more than 50 markets. It is expected that the demand from North America and re-acceleration in demand from emerging markets in Latin America, which showed strong growth in the second quarter, will drive its AWP segment revenue to around $2.3 billion this year up from $1.74 billion last year.

The cranes segment is the second largest contributor to Terex's revenue and reported year-over-year growth of 3.2% to $521.2 million in the second quarter. Terex expects the continuous uptake of its new products and improvement in global economy will help it in building a strong presence in the small and middle-size crawler market. Moreover, the decent growth in its new 650-ton crawler crane, which has improved the performance capacities by around 20% compared to its old version, is considered as the potential growth driver for EPS in second-half of 2013. Terex's Crane-segment is expected to generate revenue of around $2.2 billion this year from $1.5 billion last year with year-over-year EPS growth around 48% to $1.48.

Manitowoc (NYSE:MTW) is one of its biggest competitors for Terex in the crane segment, and it also performed well in its second quarter. Manitowoc's crane-segment reported year-over-year growth of 7.5% to $656.9 million, with the highest quarterly EPS of $0.43 since 2008 in the second quarter of 2013. Driving factors for growth were $100 million in orders from the Bauma trade show and the increased use of crawler cranes by construction and infrastructure industries in American regions. The company's continuous order inflows are building a strong backlog of $726 million as of June 2013. By delivering these orders promptly, it expects to grow its revenue in the second half of 2013.

Manitowoc also develops new crane products and focuses on enhancing crane's design and product's reliability, which enables the company to drive its future earnings. These new improved designs and increasing infrastructural activities in North America, offer Manitowoc an opportunity to capture more market share, and it expects to capitalize on the improving global macro conditions. It is estimated that Manitowoc is in a better position to generate revenue of $2.70 billion with year over year growth of around 11% and EPS of $1.65 this year.

Irrigation systems driving future revenue

Lindsay (NYSE:LNN) is one of the leading suppliers of irrigation systems that enable consumers to save water and energy. Its Irrigation equipment segment contributes nearly 90% to total revenue, showing year over year revenue growth of 34% to $200.9 million in the third quarter of fiscal year 2013. The factors contributing to this growth were higher agriculture and commodity prices, which led to increased irrigation system demands globally. In the past, a drought condition in the U.S. generated growth opportunity for Lindsay, and its efficient agricultural products helped it to strengthen its foothold in the U.S. Now the company is planning to expand in the international market, especially Brazil.

With the Brazilian government's recent announcement of subsidized interest rates on purchases of agricultural equipment, Lindsay expects to grab this opportunity and build a stronger book order. Its global presence and the increased adoption of its FieldNet remote monitoring system, which enables farmers to manage and monitor their irrigation system via wireless remote controls, will generate both short term and long-term growth opportunities for the company in this growing market. With these prevailing opportunities, Lindsay is expected to improve its margin to 10.3%, or $71.16 million this year, from 7.9%, or $43.28 million, last year, and its irrigation segment may generate revenue of around $626 million this fiscal year compared to $475 million in the last fiscal year.

The company is also very optimistic about its Infrastructure business, which is mainly driven by government infrastructure spending. The company estimates that its Golden Gate Bridge project in San Francisco will help reduce traffic congestion and will generate higher earnings margins. The construction will commence in late 2013 and should complete by late 2014 or early 2015. Lindsay expects the successful completion of this project will enable it to gain more contracts worldwide. The increase in government highway spending and timely commencement of the project will help this segment to get back on the profitability track. It is expected to generate operating income of $1.5 million in fiscal year 2014 from the estimated loss of $2.7 million in fiscal year 2013.


With the ongoing improvement in the global infrastructure scenario, manufacturing companies are placing themselves in a better position to take maximum advantage of this turnaround. Terex is strengthening its network in North America and emerging markets, and with new improved crawler cranes, it expects to drive its future revenue and EPS. Manitowoc, on other hand, introduced a more reliable crane design to capitalize on the improving global conditions. Lindsay's irrigation equipment system enables farmers to capitalize on the higher agriculture-commodity prices, and it is optimistic about its infrastructure projects, which are expected to support its future EPS. Therefore, looking at these fundamentals, we are optimistic about these three stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.