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:
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| TEREX CORP (ticker = tex) |
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JOHN GARRISON |
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* july 29, 2009 |
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* oct 15, 2015 |
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BELL HELICOPTER |
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2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
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Segment Revenue |
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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 |
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Bell Segment Profit |
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269,000 |
108,000 |
144,000 |
278,000 |
304,000 |
427,000 |
521,000 |
639,000 |
573,000 |
529,000 |
400,000 |
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Adjustments |
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9,000 |
10,000 |
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Adjusted Segment Profit |
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269,000 |
108,000 |
144,000 |
278,000 |
313,000 |
437,000 |
521,000 |
639,000 |
573,000 |
529,000 |
400,000 |
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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% |
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* Sold to Lockheed in 2015 |
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SIKORSKY |
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2005 |
2006 |
2007 |
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2009 |
2010 |
2011 |
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2015 |
2016 |
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Segment Net Sales |
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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 |
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Segment Operating Profit Margin |
250,000 |
173,000 |
373,000 |
478,000 |
608,000 |
716,000 |
840,000 |
713,055 |
594,035 |
216,079 |
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Adjustments |
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67,200 |
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447,060 |
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Adjusted Segment Profit |
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250,000 |
173,000 |
373,000 |
478,000 |
608,000 |
716,000 |
840,000 |
780,255 |
594,035 |
663,139 |
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Adjusted Segment Margin |
8.9% |
5.4% |
7.8% |
8.9% |
9.7% |
10.7% |
11.4% |
11.5% |
9.5% |
8.9% |
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BELL / SIKORSKY COMPARISON |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
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Bell / Sikorsky Revenue |
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0.7x |
0.7x |
0.5x |
0.5x |
0.5x |
0.5x |
0.5x |
0.6x |
0.7x |
0.6x |
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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% |
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* 2010 is John Garrison's first full year at Bell |
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Bell Margin Summary |
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Average 2005 - 2009 (ie BEFORE J. Garrison) |
8.8% |
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Average 2010 - 2015 (ie DURING J. Garrison) |
13.3% |
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Bell vs Skorsky Margin (Bell mgn less Sikorsky mgn) |
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Average 2005 - 2009 (ie BEFORE J. Garrison) |
0.7% |
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Average 2010 - 2014 (ie AFTER J. Garrison) |
3.3% |
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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