Global Megaprojects And Sustainable Tech Will Strengthen Equipment Demand

Key Takeaways

• Growth in digital SaaS and connected equipment is rapidly boosting margins and diversifying earnings through new high-value recurring revenue streams.
  
• Structural industry shifts and strong demand from environmental and infrastructure trends are positioning Terex for sustained revenue outperformance and expanding market share.
  
• Shifting industry trends, regulatory burdens, and increased competition threaten Terex's profitability, growth prospects, and sales volumes, especially as end-markets and customer preferences evolve.

Catalysts

Provides materials processing machinery and mobile elevating work platform worldwide.

• Analyst consensus expects synergy realization from the ESG acquisition to incrementally improve margins; however, execution is outpacing targets, with management signaling more opportunities than initially forecast and accelerating cross-portfolio digital SaaS revenue streams, positioning net margins for significant outperformance over the next two years.
  
• While analysts agree the Environmental Solutions segment gives Terex greater resilience, current estimates understate its sustained double-digit growth potential, as secular tailwinds in waste, recycling, and grid modernization are only just beginning to drive an inflection in revenue and high-teens operating margin durability.
  
• Global infrastructure megaprojects, data center buildouts, and U.S. manufacturing reshoring-amplified by bonus depreciation incentives-are likely to generate several years of elevated demand for Terex's core product lines, supporting multiyear top-line growth visibility and driving above-trend revenue.
  
• Terex's expansion of its digital and connected equipment offerings, including telematics, 3rd Eye, and SaaS-enabled platforms, is creating new recurring, high-margin revenue streams that are set to rapidly diversify earnings and increase the company's multiple over time.
  
• The ongoing shift in the equipment rental industry toward larger, global customers and higher rental penetration structurally benefits Terex's scale, support capabilities, and direct relationships, amplifying market share gains and providing more recurring aftermarket/service revenue, with the potential to lift overall margin and earnings quality.

Terex Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Terex compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Terex's revenue will grow by 8.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.5% today to 7.8% in 3 years time.
• The bullish analysts expect earnings to reach $520.8 million (and earnings per share of $7.91) by about September 2028, up from $179.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.5x on those 2028 earnings, down from 18.8x today. This future PE is lower than the current PE for the US Machinery industry at 24.7x.
• Analysts expect the number of shares outstanding to decline by 1.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.9%, as per the Simply Wall St company report.

Terex Future Earnings Per Share Growth

Risks

• Accelerating automation and robotics adoption in construction and manufacturing could reduce demand for Terex's traditional heavy machinery over time, leading to lower sales and long-term revenue decline.
  
• Increasing global emissions standards and environmental regulations may necessitate costly product redesigns and manufacturing changes, pressuring Terex's operating margins and profitability.
  
• A reliance on economically sensitive, cyclical end-markets like construction and infrastructure leaves Terex's revenue and earnings particularly vulnerable to downturns, as indicated by softer demand in certain segments and cautious customer behavior.
  
• Competitive pressures from industry consolidation and Terex's historical lag in R&D versus peers may hinder its ability to lead in next-generation electrification and automation, threatening future revenue growth and compressing net margins.
  
• The rise of equipment rental models, ongoing global trade tensions, and exposure to tariff-related cost inflation could reduce machinery sales volume and inflate sourcing costs, thereby negatively impacting earnings and eroding profit margins over time.

Valuation

• The assumed bullish price target for Terex is $73.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Terex's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $73.0, and the most bearish reporting a price target of just $38.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $6.7 billion, earnings will come to $520.8 million, and it would be trading on a PE ratio of 11.5x, assuming you use a discount rate of 9.9%.
• Given the current share price of $51.2, the bullish analyst price target of $73.0 is 29.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.