A resounding 25% surge Thursday morning in the shares of Terex (NYSE: TEX ) places this equipment manufacturer on the throne as this year's top performer in its space thus far.
Terex revealed outstanding second-quarter profit of $83.6 million, or $0.75 per share, and excited the market with robust guidance for earnings of about $2 per share for the full year. Even as the stock exploded back above the level where I issued my bullish recommendation in May, the share price remains at a single-digit multiple to that guidance. Accordingly, I see strong potential for Terex's stock to continue the positive momentum generated here.
The company's 2011 acquisition of crane-maker Demag played a significant role in generating the lion's share of Terex's 35% increase in net sales. But even excluding Demag for a more instructive comparison, net sales grew a respectable 11% during a quarter that presented difficult economic conditions in several key markets. Net sales from aerial work platforms surged by 25% as rental providers updated their fleets in North America, and Australian construction demand remained strong. And speaking of construction, the company's construction equipment unit booked its first profitable quarter since 2008 as emerging markets scooped up Terex's compact equipment line.
Continued progress at improving margins assured that those sales increases translated effectively into bottom-line profit growth, and I think management deserves ample credit for tweaking this iconic manufacturer into a lean machine-building machine. Terex still carries a heavy debt burden after staggering through the 2008 financial crisis, but the company's cash balance of $841.5 million (42% of its market capitalization!) forms a reassuring piece of its nearly $1.3 billion liquidity position.
As the following chart will show, Thursday's dramatic surge reasserted Terex's position as the king of the equipment builders here in 2012 in terms of share performance. Mining equipment specialist Joy Global (NYSE: JOY ) has taken it on the chin year to date, while large-cap market leaders Caterpillar (NYSE: CAT ) and Deere (NYSE: DE ) have slipped into negative territory.
I'm not normally one to chase trailing outperformance, but the outlook for Terex has only improved since I issued my bullish CAPScall near the present stock price a couple of months back, and that has me looking for a share price in the mid-$20s before I'll even consider closing my pick. Please make your own pick regarding Terex or one of its equipment-making kin by clicking on a link below, and please stand by for further coverage of the space by bookmarking my article list or following me on Twitter.