Terrell Corporation (NYSE:TEX), a global equipment manufacturer catering to the construction, infrastructure and surface mining industries has been disappointing investors lately as it continues to grapple with lower demand for cranes.
Consequently, shares of this Zacks Rank #4 (Sell) stock has declined 5.5% year to date. Here’s what’s happening.
TEX Earnings Estimates Moving South
The estimates for Terex for the first quarter of 2017, fiscal 2017 and fiscal 2018, have moved south in the past 30 days, reflecting the negative outlook of analysts. For the first quarter, the estimate has declined to a loss of 2 cents per share from the prior estimate of earnings per share of 6 cents per share. For fiscal 2017, the estimate has plunged 28% to 76 cents in the past 30 days. For fiscal 2017, the estimate has gone down 17% to $1.43 per share in the same time frame.
TEX’s Weak Q4 Results and Outlook Suggest Challenges Ahead
Terex’s fourth-quarter revenues declined 16.5% while adjusted earnings tanked 76% from the prior-year quarter, reflecting the challenging global market conditions. Overall backlog declined 9% mainly dragged down by Crane segment’s 21% drop in backlog followed by the 11% lower backlog in the Aerial Work Platforms (AWP) segment.
The company expects earnings per share to lie between 60 cents and 80 cents on the back of sales of $3.9 billion. The midpoint of the earnings guidance depicts a year-over-year decline of 20%. Compared with revenues of $4.44 billion in 2016, the guidance projects a 12% decline.
Near Term Headwinds Remain
Sales in the AWP segment will be hampered by the challenging market conditions, especially in North and South America. From a broader perspective, the most influential market dynamic affecting the AWP business is the North-American replacement cycle. AWP products generally have an eight-year average replacement cycle.
The market declined in late 2008 and stayed very low into 2010, and started to rebound thereafter. The company is now witnessing the consequences of the decline in backlog and sales. With lower demand for replacement of machines, Terex expects this trend to persist through 2017. The global crane market remains challenging and is anticipated to deteriorate further in 2017.
Underperforming the Industry
In the past one year, Terex gained 20%, falling behind the Zacks categorized Manufacturing – Construction and Mining sub industry’s surge of 29%.
TWX Stock’s Expensive Valuation
The company’s stretched valuation is another concern. In case of Terex, the trailing 12-month price earnings (P/E) ratio is 34.95 while the above-mentioned Zacks categorized sub industry’s average trailing 12-month P/E ratio is pegged lower at 29.5. This implies that the stock is overvalued and hence, we caution the investors against entering the stock at this point.
Other Stocks to Consider in the Sector:
ACCO Brands has delivered an average positive earnings surprise of 24.74% in the trailing four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
EnerSys and John Bean Technologies, both Zacks Rank #2 (Buy) stocks have average positive earnings surprise of 4.39% and 21.01%, respectively in the preceding four quarters.
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