Machinery Stocks

Terex Corporation Valuation – Initial Coverage $TEX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Terex Corporation (TEX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Terex Corporation is a manufacturer of lifting and material processing products and services that deliver lifecycle solutions. The Company has three business segments: Aerial Work Platforms (AWP), Cranes and Materials Processing (MP). It delivers lifecycle solutions to a range of industries, including the construction, infrastructure, manufacturing, shipping, utility, quarrying and mining industries. The AWP segment designs, manufactures, services and markets aerial work platform equipment, telehandlers and light towers. The AWP segment’s products are used by its customers to construct and maintain industrial, commercial and residential buildings and facilities, and for other commercial operations, as well as in a range of infrastructure projects. The Cranes segment’s products are used by its customers for construction and manufacturing facilities, among others. The MP segment’s products are used by its customers in construction, infrastructure and recycling projects.

TEX Chart

TEX data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TEX – July 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,726,354,201 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.03 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 500.00% Pass
6. Moderate PEmg Ratio PEmg < 20 52.14 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.37 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.03 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.74 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.73
MG Growth Estimate -4.25%
MG Value $1.23
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $10.61
MG Value based on 0% Growth $6.22
Market Implied Growth Rate 21.82%
Current Price $38.17
% of Intrinsic Value 3091.21%

Terex Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years.  As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.15 in 2013 to an estimated $0.73 for 2017.  This level of demonstrated earnings growth does not support the market’s implied estimate of 21.82% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Terex Corporation revealed the company was trading above its Graham Number of $19.54.  The company pays a dividend of $0.28 per share, for a yield of 0.7%  Its PEmg (price over earnings per share – ModernGraham) was 52.14, which was above the industry average of 24.17.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $1.23.

Terex Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $1.23
Graham Number $19.54
PEmg 52.14
Current Ratio 2.03
PB Ratio 2.37
Current Dividend $0.28
Dividend Yield 0.73%
Number of Consecutive Years of Dividend Growth 4

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2017
Total Current Assets $2,597,700,000
Total Current Liabilities $1,277,700,000
Long-Term Debt $979,600,000
Total Assets $4,163,100,000
Intangible Assets $280,100,000
Total Liabilities $2,467,800,000
Shares Outstanding (Diluted Average) 105,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.20
Dec2016 -$1.63
Dec2015 $1.33
Dec2014 $2.79
Dec2013 $1.93
Dec2012 $0.93
Dec2011 $0.41
Dec2010 $3.30
Dec2009 -$3.88
Dec2008 $0.73
Dec2007 $5.85
Dec2006 $3.88
Dec2005 $1.84
Dec2004 $3.17
Dec2003 -$2.38
Dec2002 -$1.83
Dec2001 $0.22
Dec2000 $1.71
Dec1999 $3.38
Dec1998 $0.77
Dec1997 $0.30

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.73
Dec2016 $0.69
Dec2015 $1.72
Dec2014 $1.91
Dec2013 $1.15
Dec2012 $0.61
Dec2011 $0.73
Dec2010 $1.25
Dec2009 $0.71
Dec2008 $3.04
Dec2007 $3.62
Dec2006 $1.98
Dec2005 $0.75
Dec2004 $0.20
Dec2003 -$0.79
Dec2002 $0.29
Dec2001 $1.33

Recommended Reading:

Other ModernGraham posts about the company

None.  This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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