Terex Hauled Home Rich Pay Dirt

Even in the recession, Terex (TEX ) CEO Ron DeFeo kept his eye on the long term: He went shopping for assets--and doubled the size of Terex, a Big Board-listed maker of heavy gear, such as truck-mounted cranes and ore trucks.

But Terex shares, down from 27.50 in May to 19 on Sept. 4, have yet to take account of these buys. Like other cyclicals, Terex was hammered by the recession. Sales fell from $2.1 billion in 2000 to $1.8 billion in 2001, and earnings fell from $3.41 a share to 44 cents. But DeFeo refused simply to ride out the slump: He took advantage of the price drop and bought assets.

In the past year, Terex has acquired four companies, including Siemens' Demag Mobile Cranes, which posted 2001 sales of $357 million, for $150 million; and Genie Holdings, a maker of aerial work platforms, with sales of $575 million, for $270 million.

The two buys will add 50 cents a share to Terex' earnings, figures John McGinty of Credit Suisse First Boston, who rates the stock a buy. So he raised his 2003 earnings estimate to $2.75 a share on projected sales of $3.45 billion, up from estimated 2002 earnings of $1.55 on projected flat sales.

If Terex achieves a 10%-to-12% margin--not uncommon in this industry during a recovery--on the $3.45 billion sales, earnings will hit $3.50 to $4.50 a share, says McGinty. At the stock's price of 19, that implies a price-earnings ratio of 4.2 to 5.4 on 2003 earnings. McGinty has a 12-month price target of 30. He figures Terex deserves a 7.0-7.5 p-e. (CSFB managed a Terex share offering in April.) David Raso of Salomon Smith Barney says Terex is now No. 4 in world construction gear. DeFeo's goal: Make Terex a leader in industrial machinery.

By Gene G. Marcial

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