The company rose into prosperity during CEO's Ronald Defeo's tenure who started with the company in 1995. The company used to follow the ABC approach which was their strategy "Anything But Caterpillar," a joke inside the company that they did not have the resources to go against Cat. Today the company has transformed itself into where it is a leader in over 75% of the products that it makes.
The company has four divisions. Cranes which used to be the company's biggest division but has fallen on hard times. The company also has, Materials processing, Aerial Work Platform, Construction. The company also added a position in Demag Cranes. They bought 82% of the companies outstanding stock.
Terex is simply the most undervalued stock on the market. Besides its tremendous earnings power which will be discussed in a second lets calculate the company's tangible book value which people in today's market seem to forget about. Companies like Domino's Pizza which have huge equity holes get tangible equity ignored somehow. That is a mistake. TCE (Tangible Common Equity) in hard times can be 90% of a company's valuation in good times it may be 10% but the number is still important. The number is a minimum value to value a company at assuming a company can earn a minimum required return. Also it keeps returns up. For instance if Apple had - 1 trillion of equity the stock would have no value regardless of its earnings power. People seem to realize that a dividend lowers the value of a stock by the exact dividend amount yet in the same breath ignore equity.
Warren Buffett says his biggest mistake as a young investor was focusing on buying stocks below tangible common equity. So we are saying it's a mistake to focus on TCE and ignore earnings power but its still a very important part of the equation.
The company has.................................. $2.2 billion in common equity.
The company has .....................................0.5 Goodwill
Purchase of Demag...................................$1.1
Common Equity Demag...........................$0.14
New Goodwill................................................................$1.0
Updated Tangible Common Equity.........$0.74
*Add Fair value of Demag..........................1.4
Updated TCE..............................................$2.14
Updated TCE per share ...........................$19.27
*FV of Demag based on their current share price of the other 18% of stock on the German market multiplied by EUR/USD *0.82. http://www.google.com/finance?q=demag
Besides this Terex's liquidity position is very solid with a current ratio of over 2.3 to 1 and over 1.37 to 1 excluding inventory. A current ratio measures short term assets vs short term liabilities. A ratio over 1 indicates the company can cover future liabilities without earnings. The higher the ratio, the safer the company inherently is in the short term. The company also does not have a large portion of debt maturing until 2018 and 2019.
Furthermore the previous earnings power of this company was ridiculous. The company was earning in excess of $600 million in 2007. The current price is about 2.3 times that.
The company also has huge aspirations with projected earnings of $600 million in 2013 and $1 billion in 2015.
The present value of earnings until 2015 is about $1.8 billion.
What is amazing is that inferior companies get such premium valuation to Terex. Manitowoc is valued near Terex in terms of Market Capitalization with -2 billion of tangible common equity. I don't think shareholders understand what negative equity means. It means that future earnings power is balanced off by negative equity and furthermore it heightens risk lowering returns.
OskKosh also gets a ridiculous premium to Terex despite the fact the U.S. just pulled out of Iraq. Defense is 50% of that company and they are not even profitable in non defense yet they get a 33% premium to Terex.
The smart investor will use a mis-priced stock to their advantage. Terex should gain 300% in the next year or reach close to $45 a share if not more.
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