FA Alpha Daily

This company is helping to build America’s new supply chain

The U.S. supply chain has suffered from decades of underinvestment and aging infrastructure, leading to issues such as structurally deficient bridges and frequent water main breaks. Terex Corporation (TEX), a leading manufacturer of lifting and material handling equipment, stands to benefit from this renewed focus on infrastructure development. In today’s FA Alpha, we delve into Terex’s strategic growth plans and industry-leading return on assets, positioning it as a key player in the supply-chain supercycle.

FA Alpha Daily:
Wednesday Credit
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The supply chain has seen underinvestment and aging infrastructure for over two decades. As a result, the U.S. infrastructure, both public and private, has slowly deteriorated.

More than 7% of bridges are structurally deficient, and there is a water main break every two minutes, resulting in billions of gallons of treated water lost daily.

Corporate assets are also aging, with the average age of assets at their oldest level in over 20 years. The ratio of net to gross property, plant, and equipment (PP&E) has declined from nearly 59% in 2001 to currently 54%. It will take over $500 billion to bring asset values back to 2001 levels.

This lack of investment has constrained supply chain capacity and efficiency.

The pandemic exposed vulnerabilities as outdated infrastructure struggled to meet surging demand. It was a wake-up call for much-needed upgrades.

The $1.2 trillion Bipartisan Infrastructure Law aims to rebuild aging infrastructure across the United States. This investment is expected to generate sustained demand for industries involved in next-generation infrastructure over the next 10 years.

Areas like construction, engineering, electric grid components, transportation manufacturing, and telecommunications are well-positioned.

Terex Corporation (TEX) is a manufacturer of lifting and material handling equipment. The company designs, builds, and markets products under several brands including Genie, Powerscreen, and Fuchs.

Terex offers a wide range of equipment used across construction, infrastructure, mining, energy, and other industries.

The company supplies many of the core materials handling systems and equipment needed to modernize ports, expand mining and quarrying capacity, build 5G networks, and develop renewable energy infrastructure.

The company benefits from exposure to secular growth areas like infrastructure development, global commodity demand, and trends toward electrification and automation.

At the same time, no single end market comprises an outsized portion of the business mix.

Management expects multi-year tailwinds from global initiatives to onshore manufacturing, upgrade transportation networks, and address capacity constraints worsened by the pandemic.

The company maintains an industry-leading Uniform return on assets ‘’ROA’’ of 22% and has grown its assets by 14% annually, but the market is concerned about industrial sector cyclicality.

While currently trading at a discounted 9x forward P/E, Terex’s diversification, innovation focus, and leverage to secular growth markets could support multiple expansion.

With infrastructure bills passed and capacity investments ramping up globally, the company appears well positioned as a play on the supply-chain supercycle with an upside from the continued execution of its strategic growth plans.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

This analysis of Terex Corporation (TEX)’s credit outlook is the same type of analysis that powers our macro research detailed in the member-exclusive FA Alpha Pulse.

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