Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...
2017 has been a pretty good year for the stock market so far. To date, the S&P 500 is up over 10% -- but Manitowoc (NYSE:MTW) has entirely missed that rally. Entering the year just under $6 a share, stock in the crane maker initially surged to $7.50 thanks to early investor enthusiasm for industrials stocks under a Donald Trump presidency. But Manitowoc's given up all those gains since, and as of close of trading Tuesday, Manitowoc stock was trading back down at $5.71 a share -- down 3.5% for the year.
Can Manitowoc get its groove back? One analyst thinks so. Here are three reasons why.
1. Hopeful notes from a bellwether
As investment banker R.W. Baird reports in a note covered on TheFly.com this morning, Manitowoc rival Terex (NYSE:TEX) reported its fiscal Q2 earnings yesterday, and Terex beat estimates soundly. Profits of $0.98 per share were twice what Wall Street had estimated Terex would earn (albeit Wall Street was probably tracking pro forma numbers). And of particular note was the performance of Terex's construction cranes division.
As Terex reported, "Cranes ... returned to profitability in the second quarter," and the backlog of cranes orders awaiting fulfillment "grew 29%."
2. Hopeful notes all around the world
Currently, Baird says that "global mobile crane volumes are near a cyclical trough." But after seeing what's happening over at Terex, Baird believes that the global cranes business may have now "turned the corner, with orders improving year-over-year, [and] also sequentially."
If true, this would be very good news indeed for Manitowoc, which divested its food service business in 2014, and now relies on cranes sales for essentially all of its revenue. Manitowoc's problem, of course, is that cranes sales have been falling for three years straight, crashing 36% from a high of $2.5 billion in revenue in 2013 to just $1.6 billion last year (and saddling Manitowoc with GAAP losses in each of the last two years).
If cranes are turning around, though, then that presumably means Manitowoc itself will turn around -- and maybe even earn a profit soon.
3. What it means to Manitowoc
How soon could this good news have an effect on Manitowoc stock? Very soon.
Manitowoc, you see, is due to report its own fiscal Q2 earnings on Monday, and Baird believes that now is a good time to get into Manitowoc stock ahead of the (presumably) good news. With Manitowoc busy restructuring its business to better navigate a tough environment for selling cranes, the company could benefit especially well if this environment is now improving. Baird predicts we'll see "improved margins" at Manitowoc as "volumes stabilize." The analyst further believes that Manitowoc stock is now a buy ahead of earnings, and predicts that the stock could surge past its recent high of $7.50 a share and even reach as much as $10, nearly doubling within a year.
Bonus thing: What it means to investors
So assuming Baird is right about all of this, how should investors play the turnaround in cranes -- and in Manitowoc? Despite all the above happy talk, I'd still urge caution.
As StreetInsider.com (subscription required) clarifies, although Baird is optimistic about Manitowoc's chances, the analyst is still forecasting Manitowoc to lose money this year -- $0.27 per share -- which will mean the stock will retain no P/E ratio well into 2018. However, Baird believes Manitowoc stock will turn around in 2018, and earn perhaps $0.07 per share in profit.
Mind you, this is not a popular view. In fact, according to data from S&P Global Market Intelligence, most analysts who follow the stock are looking for no better than breakeven results from Manitowoc next year -- and a $0.46 loss per share this year.
My advice: Whatever Manitowoc reports as its actual earnings results next week, keep your eyes firmly focused on management's comments on trends in crane sales, and its guidance for the year to come. The closer management's view is to Baird's, and the more it diverges from the Wall Street consensus, the better for Manitowoc stock.