ESG Integration Will Deliver $25 Million In Synergies By 2026

Key Takeaways

• Integration of ESG and operational efficiencies should enhance net margins and revenue stability, leveraging low cyclicality in waste and recycling markets.
  
• Significant investments in infrastructure and product innovation are set to drive substantial revenue growth and customer acquisition.
  
• Terex faces challenges from high interest rates, geopolitical uncertainties, and a weak European market, potentially impacting revenue, margins, and earnings.

Catalysts

Provides materials processing machinery and mobile elevating work platform worldwide.

• The integration of ESG into Terex is expected to deliver at least $25 million in operational run rate synergies by the end of 2026, which should positively impact net margins by enhancing operational efficiency and leveraging commercial opportunities.
  
• Approximately 25% of Terex’s revenue is now derived from waste and recycling markets, characterized by low cyclicality and steady growth, which should enhance revenue stability and support long-term revenue growth.
  
• Significant investments in infrastructure and utilities worldwide, particularly in the United States, are providing a strong tailwind for Terex, potentially driving substantial revenue growth across these segments.
  
• Terex’s commitment to innovation with a strong pipeline of new product developments, including the introduction of groundbreaking, efficient machinery, is expected to drive customer acquisition and retention, ultimately boosting revenue and net margins.
  
• Operational efficiencies and capacity expansions, such as those in the utilities segment, are poised to unlock further growth potential and improve net margins by streamlining production processes and reducing costs.

Terex Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Terex's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.5% today to 7.1% in 3 years time.
• Analysts expect earnings to reach $409.0 million (and earnings per share of $6.07) by about April 2028, up from $335.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, up from 7.0x today. This future PE is lower than the current PE for the US Machinery industry at 21.3x.
• Analysts expect the number of shares outstanding to decline by 1.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.63%, as per the Simply Wall St company report.

Terex Future Earnings Per Share Growth

Risks

• The company faces risks related to elevated interest rates and uncertainties around the Federal Reserve's outlook, potentially impacting private sector projects and hence, revenue and net margins.
  
• Terex's exposure to a weak European market could lead to lower sales in that region, affecting overall revenue and earnings.
  
• Continued geopolitical uncertainties and potential new tariffs, especially concerning North America, may disrupt supply chains and increase costs, impacting net margins.
  
• The need to adjust production and manage operations in response to macroeconomic factors could lead to unfavorable manufacturing variances, putting pressure on operating margins and earnings.
  
• A high debt load due to acquisition-related financing increases interest expenses, which could reduce net income and impact earnings per share.

Valuation

• The analysts have a consensus price target of $42.409 for Terex based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $63.0, and the most bearish reporting a price target of just $30.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.8 billion, earnings will come to $409.0 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 9.6%.
• Given the current share price of $35.61, the analyst price target of $42.41 is 16.0% 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.