Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Terex Corporation (TEX): Is It About Time to Buy This Beaten-Down Stock?

Management efficiency
The crane segment was also the only business for Terex beside AWP to report a higher gross margin year over year in the last quarter, thanks to better pricing and cost cutting. To tackle economic challenges, Terex is aggressively reducing costs through moves like selling off poor-return businesses such as road-building products in Brazil and construction equipment business units in Germany. In fact, Terex has been realigning operations across segments for a long time, the effects of which are reflected in its expanding gross margin. The chart below shows the percent change in Terex’s quarterly gross margin vis-à-vis peers over the past three years.

TEX Gross Profit Margin Quarterly Chart

TEX Gross Profit Margin Quarterly data by YCharts

Terex is the only company to have expanded its gross margin since 2010. While Manitowoc Company, Inc. (NYSE:MTW)’s margin has remained relatively flat, both Caterpillar and Deere have seen their respective gross margins shrink by 7% each. Caterpillar can blame the sluggishness in the mining industry, which is responsible for 41% of its revenue, while Deere & Company (NYSE:DE) has had to put up with headwinds like the severe drought that ravaged the U.S. last year. Deere gets 80% of revenue from farm equipment and the rest comes from the construction market. Though Terex’s gross margin at 19% isn’t the best in the industry, the growth, as evidenced by the chart above, is hard to ignore.

Internally strong
Apart from margin expansion, Terex Corporation (NYSE:TEX) is also strengthening its balance sheet. The company’s long-term debt soared to $2.2 billion when it acquired Demag cranes in late 2011. Terex has pared down the figure by nearly 10% since then. At the same time, Terex’s annual net income has more than doubled since the acquisition. More importantly, Terex generated $344 million in free cash flow last year, thrice the amount of net profit it earned. Few companies do that.

Strong cash flow, coupled with the recent drop in price, means Terex’s stock is currently trading at a strikingly low price to cash flow ratio of 6.9, which is also the lowest among peers. While Caterpillar is a close second with a P/CF ratio of 8.6, Deere & Company (NYSE:DE) looks expensive at a P/CF of 21. Manitowoc and Oshkosh are both trading at around 12 times cash flow.

I don’t think prudent investors should read much into Terex’s earnings downgrade. The company’s long-term story remains intact, and I like its management’s focused approach on making the company leaner and better. At current prices, Terex looks like a good bargain.

The article Is It About Time to Buy This Beaten-Down Stock? originally appeared on Fool.com and is written by Neha Chamaria.

Fool contributor Neha Chamaria has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.