Wells Fargo & Co (WFC), Manitowoc Company, Inc. (MTW), Terex Corporation (TEX): Wednesday’s Top Upgrades (and Downgrades)

Free cash flow at the firm, a primary focus of mine, isn’t quite up to the level I’d like to see, lagging reported net income by a few million dollars. But even so, the price to free cash flow ratio on this one works out to less than 25 times, and even factoring debt into the picture, the worst I could say about the stock is that, at an enterprise value to free cash flow ratio of 43, it might be getting close to fair value.

Long story short: Mani’s a hold at worst, a buy at best.

Terex is terrific
Of course, the stock I really like today is Stifel’s other recommendation in the construction equipment space: Terex Corporation (NYSE:TEX).

Like Manitowoc Company, Inc. (NYSE:MTW), Terex Corporation (NYSE:TEX) scored a buy rating from Stifel today (and a $44 price target). Like Manitowoc, Terex Corporation (NYSE:TEX) also looks expensive on the surface, with a P/E ratio that soars to 34 and beyond. Un-like Manitowoc, though, growth predictions for Terex Corporation (NYSE:TEX) are much more down to earth, with most analysts expecting the company to rumble along producing 10% or less profit growth over the next five years. Admittedly, that doesn’t sound like much of a reason to own a stock selling for 34 times earnings, but wait — this story gets better.

Reporting less than $107 million in GAAP profits last year, Terex Corporation (NYSE:TEX) actually generated more than three times as much real cash profit — free cash flow — as the GAAP accounting standards let it record as net earnings. As a result, the company’s real free cash flow was $344 million, and its price to free cash flow ratio a mere 10.3. That may be a bit high for a 9.5% projected growth rate, but on the other hand, 9.5% growth should be a much easier target to hit than 40%.

The article Wednesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, and Wells Fargo.

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