FA Alpha Daily

Tires, tracks, and transformation

The pandemic revealed the vulnerabilities and outdated systems in the U.S. infrastructure, which require a much-needed upgrade. This creates sustained demand for players involved in next-generation infrastructure, like Titan International (TWI). In today’s FA Alpha, we delve into Titan International’s service offerings and how it can capitalize on the anticipated demand growth.

FA Alpha Daily:
Wednesday Credit
Powered by Valens Research

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The pandemic exposed vulnerabilities as outdated infrastructure struggled to meet surging demand.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.

One company that stands to benefit substantially is Titan International (TWI).

Titan manufactures off-highway tires, wheels, and undercarriage equipment for the agriculture and construction industries. These end markets have seen decades of underinvestment but are now overdue for fleet replacement as equipment ages.

As companies upgrade machinery, demand for Titan’s products will increase materially. Titan is a leading global manufacturer well-positioned to capture this growth.

The aging equipment across its key verticals represents a massive potential replacement cycle that could significantly boost Titan’s revenues and profits in the coming years.

Additionally, Titan acquired Carlstar Group for $300 million in late February. Carlstar manufactures wheels and tires for construction and mining equipment, providing strategic synergies with Titan’s existing portfolio.

The deal expands Titan’s product offerings and geographical presence in key regions like EMEA and Latin America.

Management expects the acquisition to drive revenue synergies through increased cross-selling opportunities between Titan and Carlstar’s complementary customer bases.

Despite the positive supply chain tailwinds and strategic acquisition, the market has yet to fully reflect Titan’s upside.

At current levels, Titan appears to be undervalued as the infrastructure supercycle gains momentum.

Best regards,

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

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

Subscriptions & Services

Please fill out the fields below so that our client relations team can contact you

Or contact our Client Relationship Team at +1 630-841-0683