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TEREX CORP TEX
March 24, 2017 - 1:47pm EST by
pokey351
2017 2018
Price: 29.95 EPS 1.27 3.74
Shares Out. (in M): 109 P/E 23 8
Market Cap (in $M): 3,264 P/FCF 23 8
Net Debt (in $M): 1,200 EBIT 200 470
TEV (in $M): 1,230 TEV/EBIT 6 3

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Description

NOTE: Data in the -2018- cells are actually -2020-.

I didn't see a way to change the year so I put the data for 2020 in the 2018 column.

The reason for this is because 2018 #s don't matter -- Terex is on the verge of a step-change improvement in the business -- and the relevant data point to look at is this year (2017) and the end-point (2020).

 

Terex operates in three segments -- 1) Aerial Work Platforms (think scissor lifts, telescopic boom handlers, and related), 2) Cranes, 3) Material Processing Equipment.

 

Currently, segments 1 and 3 are generating positive (albeit unremarkable) margins and segment 2 (Cranes) has been losing money -- but is aiming to break-even in 2017.

 

Described Simply: The Terex Thesis is: Turnaround + Special Situation + Great CEO.

 

The relatively new CEO at Terex, John Garrison, is phenomenal.

Prior to Terex, Garrison ran the Bell Helicopter division at TXT. He did an amazing job:

 

 

                                     
TEREX CORP (ticker = tex)                           JOHN GARRISON
                                     
                  * july 29, 2009         * oct 15, 2015    
    BELL HELICOPTER    2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016    
    Segment Revenue    2,075,000  2,347,000  2,581,000  2,827,000  2,842,000  3,241,000  3,525,000  4,274,000  4,511,000  4,245,000  3,454,000      
                                     
    Bell Segment Profit       269,000     108,000     144,000     278,000     304,000     427,000     521,000     639,000     573,000     529,000     400,000      
    Adjustments                     -                 -                 -                 -         9,000       10,000                 -                 -                 -                 -                 -      
    Adjusted Segment Profit       269,000     108,000     144,000     278,000     313,000     437,000     521,000     639,000     573,000     529,000     400,000      
                                     
    Adjusted Segment Margin 13.0% 4.6% 5.6% 9.8% 11.0% 13.5% 14.8% 15.0% 12.7% 12.5% 11.6%      
                                     
                                     
                               * Sold to Lockheed in 2015   
    SIKORSKY   2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016    
    Segment Net Sales    2,802,000  3,230,000  4,789,000  5,346,000  6,287,000  6,684,000  7,355,000  6,791,000  6,253,000  7,451,000        
                                     
    Segment Operating Profit Margin     250,000     173,000     373,000     478,000     608,000     716,000     840,000     713,055     594,035     216,079        
    Adjustments                     -                 -                 -                 -                 -                 -                 -       67,200                 -     447,060        
    Adjusted Segment Profit       250,000     173,000     373,000     478,000     608,000     716,000     840,000     780,255     594,035     663,139        
                                     
    Adjusted Segment Margin 8.9% 5.4% 7.8% 8.9% 9.7% 10.7% 11.4% 11.5% 9.5% 8.9%        
                                     
                                     
    BELL / SIKORSKY COMPARISON 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016    
                                     
    Bell / Sikorsky Revenue   0.7x 0.7x 0.5x 0.5x 0.5x 0.5x 0.5x 0.6x 0.7x 0.6x        
                                     
    Bell Margin less Sikorksy Margin 4.0% -0.8% -2.2% 0.9% 1.3% 2.8% 3.4% 3.5% 3.2% 3.6%        
                                     
                                     
                                     
                     * 2010 is John Garrison's first full year at Bell           
                                     
    Bell Margin Summary                              
    Average 2005 - 2009 (ie BEFORE J. Garrison) 8.8%                        
    Average 2010 - 2015 (ie DURING J. Garrison) 13.3%                        
                                     
                                     
    Bell vs Skorsky Margin  (Bell mgn less Sikorsky mgn)                        
    Average 2005 - 2009 (ie BEFORE J. Garrison) 0.7%                        
    Average 2010 - 2014 (ie AFTER J. Garrison) 3.3%                        
                                     

 

In 2017 - based on their guidance -- Terex will do ~ $1.27 of after tax free cash flow assuming a 5% op mgn - and assuming the cranes segment breaks even.

By 2020 -- in no small part due to J Garrison's ability to drastically improve operations -- combined with the utilization of KoneKranes deal to buyback stock -- Terex should be doing ~10% margins on slightly higher revenue and much lower share count.

 

As a result - they should be doing ~$3.74/shr --giving credit for interim cash flows, and using a 9x multiple on the low end and 13x multiple on the high end -- TEX could be worth ~$40 on the low end and ~$53 on the high end.

 

In the downside scenario -- TEX is currently doing ~$1.27 in after tax free cash flow on a 5% margin, assuming cranes contribute nothing.

 

Using a 9-13x multiple and assuming the cranes business is worth 1x sales, gets a value of ~$28 - $33 on the downside.

 

The current stock price is just under $30, so there is limited downside with significant upside potential.

 

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.

Catalyst

Consumation of Deal w/ KoneKranes + Margin Improvement by New CEO JOhn Garrison

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