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Terex: Insiders step up to infrastructure play

 December 02, 2008 10:35 AM


"Some of the most aggressive buying we've seen from insiders has come from Terex (NYSE: TEX), where seven insider have been on the bid since October 24th," says Bill Martin.

In his BullMarket.com, he explains, "The Westport, Conn.-based company manufactures capital equipment for construction, infrastructure, quarrying, mining, shipping, transportation, refining, and utility industries worldwide." Here's his review of the stock.

"The shares recently traded at $9.33, down -86% year to date. The stock hit a 52-week high of $76.25 in May and is currently trading at multi-year lows.

"The company announced Q3 results on October 22nd that fell well short of analyst earnings estimates.

"For the quarter, Terex reported its profit fell year over year to $93.8 million, or 96 cents per share, down from $151.1 million, or $1.45 per share. Adjusted earnings came in at $1.08, which was well below the $1.33 profit analysts were expecting.

"Looking forward, Terex cut its 2008 earnings outlook for the second time in less than two months, faulting weakness in worldwide construction. As such, the company said it is expecting to post a FY08 profit of $5.69-$5.79 a share, down from earlier guidance of $6.35-$6.65 per share.

"Sales, meanwhile, are expected to range between $10.0-$10.3 billion, below the $10.2-$10.6 billion Terex had previously guided for.

"Ahead of the guidance cut, analysts were calling for FY08 earnings of $7.06 per share on $10.6 billion in sales. In order to combat a deteriorating economic environment and horde cash, Terex said it has suspended its repurchase program and that it will layoff several hundred employees.

"The spate of insider selling reverses a selling trend from earlier this year when insiders were dumping stock left and right, albeit at prices sometimes 7x higher than some of the recent buys.

"The largest buy was made by DeFeo, who purchased 26K shares at $12.33 on October 24th. The buy was his first in at least five years.

"etween September 2003 and October 2007, DeFeo sold 224.9K shares at $52.56 and exercised and sold options on 451.9K shares at $57.23 for total outflows of $37.7 million.

"The most-recent buyer was President of Developing Markets Steve Filipov, who bought 8.0K shares at $10.38 on November 19th.

"Other notable buyers included President and Chief Operating Officer Thomas Riordan, who purchased 25K shares at $11.95 on October 28th, and Senior Vice President of Finance and Business Development Brian Henry, who bought 12.5K shares at $12.96 on October 24th.

"Even with its reduced guidance, Terex is trading at one of the lowest P/Es you'll see at under 2x 2008 earnings. However, it's pretty safe to assume 2009 earnings will fall off a cliff. The balance sheet is fairly strong with nearly $500 million cash and $1.5 million in debt.

"If Terex is still able to make money and be cash flow positive, it looks pretty cheap. Meanwhile, we would imagine that the infrastructure story will return when the global economy emerges from the worldwide slump it is in. The possibility of an infrastructure stimulus package is also a wildcard.

"While the insider buys aren't the biggest cash outlays you'll see, the number of participants is encouraging. The stock is obviously speculative given the uncertain environment, but it could be a big winner if the global economy can emerge from this downturn at some point in the next 18 months."

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