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Terex (NYSE: TEX) : Finally the action time

|Includes: BUCY, CAT, JOY, Terex Corporation (TEX)

Terex fundamentals are showing good signs of improvements. Stock has just started reacting to it and its an excellent time to buy. The company has 4 segments Aerial Work Platform (NYSE:AWP), Material Processing, Construction and Cranes. Following are the main fundamental catalysts for the stock: 

AWP segment: (According to my checks) Quoting activity has increased significantly during the quarter. Orders would start coming to backlog in 4Q of current year.

This is a business with 30%+ incremental margins (model a bit higher for initial years) and any return back in this business is good enough sign to bring the catalytic investors back.

Material Processing:

Continues to be very strong. Company expects to make it a $1.6 bn business by 2013 and right way to model it is a linear increase. Not commenting on 2013 target but for this year the sequential rate of increase has thus far continued and again y most of the sell side no.s are underestimating it.

Stabilizing crane business:

Rough terrain cranes are seeing ramp up in RFPs in Middle East and Russia after bouncing along the bottom for so long. Slow drift down in larger cranes is likely to be offset fully by this. Overall crane business which has concerned investors for so long has finally bottomed.

Book to bill

4Q would be a step up as far as book to bill is concerned (thanks to AWP booking) however 3Q is not likely to disappoint either.

Better than expected results for the second half.

Thanks to the strong trends Terex is likely to do better than breakeven at operating profit level for the 2010. Not sure if they would guide to it explicitly on 3Q con call/investor day but I think it would be pretty much obvious by their tone.

Am surprised some of the sell side guys still have negative EPS projection for fourth Quarter.

Replacement cycle

According to both CAT & TEX management, this is the widely misunderstood fact among most sell side and buy side guys. (Even those who say they understand it, are actually missing the magnitude). Caterpillar in all probability is going to positively surprise on preliminary 2011 guidance (at 3Q con. call) thanks to the replacement demand. That will bode well for Terex.

What to expect of the share price?

Terex is down 21% from April end peak while Caterpillar is scaling 52 week high. Caterpillar is already seeing positive trends for sometime now, while for Terex the real inflection has started occurring just now- so ideally Terex should be seeing better upside.

The stock is likely to cross its 52 weeks high on the back of these positive catalysts. Given the recent buying interest in the stock I would be surprised if does wait for actual 3Q earnings release/ Investor day to go up to that level… As buy siders start getting the sense on real trends, the stock will go past $28 in next few weeks even before actual 3Q results.

Disclosure: Long TEX