Terex Corporation (TEX): 3 Reasons to Buy This Stock if It Misses Earnings Estimates

If Terex Corporation (NYSE:TEX)’s second-quarter domestic sales fall and the outlook remains muted, it could be a warning signal for Terex investors to expect the company to grow at a slower rate in the near future.

Where is management’s focus?
In the backdrop of lower expectations on the top line, a lot will depend on what Terex Corporation (NYSE:TEX)’s management is doing to tackle the headwinds. In its upcoming earnings call, investors should look for any cost-cutting measures that Terex is taking, and whether they are translating into higher margins. Better pricing, combined with lower spending, helped Terex realize a one percentage point gain in its gross margin during the first quarter, despite a 5% fall in revenue. If margins continue to grow, it’s a healthy sign.

Likewise, investors should note whether Terex Corporation (NYSE:TEX)’s cash flow is growing, because the company shoulders a large debt burden of over $2 billion and cash on hand of just about $730 million. In uncertain times, strong cash flows act like a safety cushion.

The Foolish bottom line
Terex’s second-quarter growth may disappoint on both the top and bottom lines, but sluggishness in key markets looks like a short-term headwind. If Terex’s backlog, gross margin, and cash flows trend higher, investors need not worry much. With the key metrics remaining at healthy levels, Terex will be a good stock to ride the upturn.