2023 is shaping up to be another solid year for narrow-moat-rated Terex TEX. Solid demand and supply chain improvements gave management confidence to raise guidance on both the top and bottom lines during its most recent earnings release, and once again we project double-digit sales and earnings growth this year.
We’re impressed with the company’s performance in both its segments: aerial platforms and materials processing. In aerial platforms, we forecast 10% top-line growth in 2023, while operating margins expand approximately 360 basis points. For us, a key driver is Terex’s ability to continue finding more manufacturing efficiencies through its cost reduction program. We also expect the company to benefit from the replacement cycle. The average age of aerial platforms is elevated, which we think will be a tailwind for its Genie brand. In materials processing, we forecast 10% sales growth and over 40 basis points of operating margin expansion. This sector is closely tied to the U.S. infrastructure story, which we expect to pick up late this year and into next year.
We currently view Terex’s shares as fairly valued. Our fair value estimate is $48.50, roughly in line with the current market price. We’re already baking in relatively strong sales and margin performance in our cash flow model. On a consolidated basis, we think sales will grow by nearly 6% through 2027, thanks to the increased infrastructure spending that we expect to come online soon. With profitability, we expect operating margins to average 10% for Terex over the same time span, largely due to improved pricing and better cost management.
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