Terex: A Promising Play in the Construction and Waste Management Sectors

As an investor, you've likely heard about Terex's (NYSE:TEX) impressive 98% return over the past five years. But what's behind this success, and is there still room for growth? Let's dive into the factors driving Terex's performance and explore its potential in the construction and waste management sectors.

Transformation and Growth Drivers

Terex's strong performance can be attributed to several key factors:

1. Transformation Efforts: Terex has undergone a transformation journey, divesting capital-intensive, low-margin businesses and focusing on high-growth areas. This strategy has reduced SG&A as a percent of sales and increased earnings per share. The company's Return on Invested Capital (ROIC) is expected to more than triple from 2015 to 2022.
2. Growth in Material Processing Segment: Terex has been growing its Material Processing segment, which now accounts for 60% of operating profit. This segment has witnessed a CAGR of 9% in sales and 575 basis points of operating profit improvement since 2016.
3. Parts & Services Business Growth: Terex has been growing its parts & services business, which is a predictable and profitable business.
4. Acquisitions: Terex has completed five acquisitions since 2021, adding scope and increasing inorganic investment.

These factors have contributed to Terex's growth and profitability, and they are sustainable in the long term.

Strategic Focus on Materials Processing and Aerial Work Platforms

Terex's strategic focus on materials processing and aerial work platforms has significantly contributed to its growth and profitability. The Material Processing (MP) segment is expected to report net sales of $1.9 billion in 2022, indicating year-over-year growth of 12%, and an operating margin of 15-15.3% compared to 14.2% in 2021. For 2027, the segment's sales are projected to reach $2.7 billion, witnessing a CAGR of 7.5% from 2022, with an operating margin target of 16-16.5%.

The Aerial Work Platforms (AWP) segment is expected to report net sales of $2.4 billion in 2022, projecting year-over-year growth of 10%, and an operating margin of 8% compared to 7.0% in 2021. In 2027, the segment's sales are expected to be more than $3.3 billion, with an operating margin of 13-14%.

Acquisition of Environmental Solutions Group

Terex's recent acquisition of Environmental Solutions Group (ESG) is expected to have a significant positive impact on the company's financial performance, market position, and growth prospects in the waste and recycling segment. ESG's consistent, resilient growth, market-leading position, and complementary product offerings are expected to drive increased revenue growth, free cash flow, EBITDA margin, and EPS accretion. The acquisition is expected to be double-digit percentage adjusted EPS accretive in 2025, with meaningful growth thereafter.



Opportunities for Further Expansion

Terex can explore several opportunities for further expansion in the construction and waste management sectors:

1. Inorganic Growth: Terex can explore strategic acquisitions to expand its product offerings, enter new markets, or strengthen its position in existing markets.
2. Organic Growth: Terex can invest in research and development to introduce new products, improve existing products, and enhance its digital solutions.
3. Geographic Expansion: Terex can focus on expanding its presence in high-growth markets, such as Asia-Pacific and emerging markets.
4. Diversification: Terex can explore opportunities to diversify its product offerings and enter new markets, such as the electric vehicle charging infrastructure market.

By continuing to focus on these segments and pursuing these opportunities, Terex can further drive its growth and profitability.

Conclusion

Terex's impressive 98% return over the past five years is a testament to the company's strategic focus on materials processing and aerial work platforms, as well as its successful transformation efforts. With the acquisition of Environmental Solutions Group, Terex is well-positioned to continue its growth and profitability in the construction and waste management sectors. As an investor, keeping an eye on Terex's progress and considering its potential for further expansion can be a rewarding strategy.