Terex Report by ashrafp

VIEWS: 162 PAGES: 32

									                              Buy Report – April 2008
                    Ted Barnhart                Ryan Fitzgibbon

      RECOMMENDATION: BUY 900              SHARES      (FULL-POSITION)
Previous Close $65.04
Open $64.31
Day High $66.66
Day Low $64.31
52-Week High $96.94
52-Week Low $46.50
Beta 1.75
Volume 653.3K
Avg Volume 1.7M
Mkt Cap. $6.80B
Shares Out 101.6M
EPS (TTM) $5.87
Div & Yield 0.00 (0.00%)
Ex Div Date --

  Terex Corporation manufactures capital equipment for construction, infrastructure,
  quarrying, mining, shipping, transportation, refining, and utility industries
  worldwide. Terex has five segments of products: aerial lift platforms,
  construction, cranes, material processing and mining, and road-building, utility
  products, and other. Terex Corporation sells its products through dealers and
  distributors, as well as leases and rents equipment to third parties.

                   Good:                                       Bad:
      Global demand for Terex products
      Development of foreign markets,            Very cyclical
       such as China and Russia                   Sensitive to prices of
      Company focused on ROIC                     commodities and government
      Experienced proven CEO                      spending
      One-stop shop for customers                Pending government investigation
      Large player in industry                   Low profit margins
      Will benefit from $41 trillion             Highly competitive industry
       global infrastructure development
                               Table of Contents
Executive Summary                                  3

Risk Factors                                       4

Business Overview                                  7

Company History                                    9

Recent News                                        10

Management                                         11

Competitors                                        12

Global Economy                                     13

Global Infrastructure Demand                       15

SWOT Analysis                                      17

Backlog                                            18

Analyst Recommendations                            19

Growth Analysis                                    20

ROE & ROIC                                         22

Profitability Analysis                             23

Financial Strength                                 23

Asset and Debt Management                          24

Relative Value Analysis                            25

Pro Forma Income Statement                         27

FCFF Valuation                                     28

Balance Sheet                                      30

Income Statement                                   31

Value Line                                         32

                                       Executive Summary1
          Stock Type: Cyclical      Sector: Industrial Materials         Industry: Construction Machinery

Terex manufactures equipment for use in construction and mining. Its construction equipment includes dump
haulers and off-highway rigid and articulated haulers, scrapers, wheel loaders, mobile cranes, and aerial lift
equipment. In addition, Terex produces heavy-duty trucks and related components. Approximately 70% of the
company's total sales now come from outside the United States. This stock is in the construction machinery
industry, which has proven to be an excellent industry over the trailing 5- and 10-year periods. Compared to other
stocks in its industry, though, its five-year returns have been about average. This stock is in an industry with a
relatively small number of competitors, and looking at its sales, it is one of the largest players with recognized
revenue of approximately $9.1 billion.

For Terex to generate decent returns for investors, it will probably only have to realize moderate growth in earnings
or a higher valuation by the market. Operating in the construction equipment industry Terex should be able to play
an important role in the estimated $41 trillion global infrastructure development. Most stocks in the construction
machinery industry have seen rapidly growing revenue and earnings over the past three years. This stock has been
no exception as far as top-line growth is concerned--its revenues have grown very rapidly over the past three years.
Like its peers, Terex‟s earnings per share have grown at a very high rate over the past three years, too.

Terex currently has a $4.2 billion backlog on the books for 2008. The Company should realize growth from strong
markets, margin expansion activities, innovative initiatives (products, services & selling strategies), and acquisitions
resulting in market share gains. Over the long haul, Terex has posted profitability results that are about average for
its industry. Note however that the company has had very low profit margins, another key profitability measure. It
is important to note that competitors have begun to increase prices to improve profitability. Terex will likely be able
to increase the price of their products to move in-line with their competitors.

Demand for Terex's products depends largely on Commodities Prices and global economic growth. Terex benefits
from increased demand for its products from the companies that produce commodities. Similarly, when the global
economy is expanding, Terex earns more contracts for infrastructure development. Economic expansion combined
with soaring commodity prices helped Terex average a 24% annual increase in sales over the last five years. The
Company has been able to deal with issues of raw material increases by paying the costs on to customers. They are
adding more capacity, especially in low-cost areas such as India which will come on-stream this year, so volume
will grow while margins will likely better at the same time.

Terex hit its 52-week high of $96.94 in July, 2007. However, the Company missed its 3Q estimates by $0.02 cents
and has since dropped nearly 45% to $65.97 per share. At just eight times 2008's projected earnings of $6.65-$7.15
per share, Terex trades at a discount to its industry. For example, international equipment maker Joy Global trades at
twice Terex's multiple. Analysts have a mean target price of $84.27. We arrived at valuations of $74.26, $94.11,
$102.30, $105.05 and $127.19 per share.

    Morningstar, Yahoo! Finance, Terex’s 2007 AR

                                               Risk Factors2
The risks described below are possible areas for concern regarding the future prospects for Terex. If any of the
following risks actually occurs, the business, financial condition or results of operation could be adversely affected.

The business is affected by the cyclical nature of the markets.
Demand for Terex‟s products depends upon general economic conditions in the markets in which the Company
competes. Terex sales depend in part upon Terex customers‟ replacement or repair cycles. Adverse economic
conditions, including a decrease in commodity prices, may cause customers to forego or postpone new purchases in
favor of repairing existing machinery. Downward economic cycles may result in reductions in sales of Terex
products, which may reduce Terex profits.

Terex business is sensitive to increases in interest rates.
Terex is exposed to interest rate volatility with regard to existing variable rate debt and future issuances of fixed rate
debt. Primary exposure includes movements in the U.S. prime rate and the London Interbank Offer Rate (“LIBOR”).
Terex uses interest rate swaps to help manage Terex interest rate risk. If interest rates rise, it becomes more costly
for Terex customers to borrow money to pay for the equipment. Should interest rates in Terex key markets rise,
prospects for business investment and manufacturing could deteriorate sufficiently to impact sales.

The Company’s business is sensitive to government spending.
Many of Terex customers depend substantially on government funding of highway construction, maintenance and
other infrastructure projects. In addition, Terex sells products to governments and government agencies in the U.S.
and other nations. Any decrease or delay in government funding of highway construction and maintenance, other
infrastructure projects and overall government spending could cause Terex revenues and profits to decrease.

Terex operates in a highly competitive industry.
Terex‟s industry is highly competitive. To compete successfully, Terex products must excel in terms of quality,
price, features, ease of use, safety and comfort. The greater financial resources of certain of Terex competitors
may put us at a competitive disadvantage. If competition in Terex industry intensifies or if Terex current competitors
enhance their products or lower their prices for competing products, Terex may lose sales or be required to lower the
prices charged for Terex products. This may reduce revenue from Terex products and services, lower Terex gross
margins or cause Terex to lose market share.

A material disruption to one of Terex significant manufacturing plants could adversely affect Terex ability to
generate revenue.
Terex produces most of Terex machines and aftermarket parts for each product type at one manufacturing facility. If
operations at a significant facility were to be disrupted as a result of equipment failures, natural disasters, work
stoppages, power outages or other reasons, Terex business, financial conditions and results of operations could be
adversely affected. Interruptions in production could increase costs and delay delivery of units in production.
Production capacity limits could cause us to reduce or delay sales efforts until production capacity is available.

Terex relies on key management.
Terex relies on the management and leadership skills of Ronald M. DeFeo, Terex Chairman of the Board and Chief
Executive Officer. Mr. DeFeo has been with Terex since 1992, serving as Chief Executive Officer since 1995 and
Chairman since 1998, guiding the transformation of Terex during that time. Terex has an employment agreement
with Mr. DeFeo, which expires on December 31, 2012. The loss of his services could have a significant, negative
impact on Terex business.

Some of Terex customers rely on financing with third parties to purchase Terex products.
Terex relies on sales of Terex products to generate cash from operations. A significant portion of Terex sales are
financed by third party finance companies on behalf of Terex customers. The availability of financing by third
parties is affected by general economic conditions, the credit worthiness of Terex customers and the estimated

    Terex’s 2007 AR

residual value of Terex equipment. Deterioration in the credit quality of Terex customers or the estimated residual
value of Terex equipment could negatively impact the ability of Terex customers to obtain the resources they need
to make purchases of Terex equipment.

Terex provides financing for some of Terex customers.
Terex, directly and through joint ventures, provide financing for some of Terex customers, primarily in Europe and
the United States, to purchase Terex equipment. For the most part, this financing represents sales type leases and
operating leases. It has been Terex policy to provide such financing to Terex customers in situations where Terex
anticipates that they will be able to sell the financing obligations to a third party financial institution within a short
period. However, until such financing obligations are sold to a third party or if Terex is unable to sell such
obligations to a third party, Terex retain the risks resulting from such customer financing. Terex results could be
adversely affected if such customers default on their contractual obligations to us. Terex results also could be
adversely affected if the residual values of such leased equipment declines below its original estimated values and
we subsequently sell such equipment at a loss.

Terex is dependent upon third-party suppliers, making Terex vulnerable to supply shortages and price
Terex obtain materials and manufactured components from third-party suppliers. Delays in Terex suppliers‟ abilities
to provide Terex with necessary materials and components may delay production at a number of Terex
manufacturing locations, or may require Terex to seek alternative supply sources. Delays in obtaining supplies may
result from a number of factors affecting Terex suppliers, including capacity constraints, labor disputes, impaired
supplier financial condition, suppliers‟ allocations to other purchasers, weather emergencies or acts of war or
terrorism. Any delay in receiving supplies could impair Terex ability to deliver products to Terex customers
and, accordingly, could have a material adverse effect on Terex business, results of operations and financial

The Company is subject to currency fluctuations.
Terex products are sold in over 100 countries around the world. Terex revenues are generated in U.S. dollars and
foreign currencies, including the Euro and British Pound Sterling, while costs incurred to generate Terex revenues
are only partly incurred in the same currencies. Since Terex financial statements are denominated in U.S. Dollars,
changes in currency exchange rates between the U.S. Dollar and other currencies, such as the recent decline of the
U.S. Dollar relative to the Euro and British Pound Sterling, have had, and will continue to have, an impact on Terex
earnings. To reduce this currency exchange risk, Terex may buy protecting or offsetting positions (known as
“hedges”) in certain currencies to reduce the risk of an adverse currency exchange movement. Terex has not
engaged in any speculative or profit motivated hedging activities.

Terex is exposed to political, economic and other risks that arise from operating a multinational business.
Terex international operations are subject to a number of potential risks. Such risks principally include:
• trade protection measures and currency exchange controls;
• labor unrest;
• regional economic uncertainty;
• political instability;
• terrorist activities and the U.S. and international response thereto;
• restrictions on the transfer of funds into or out of a country;
• export duties and quotas;
• domestic and foreign customs and tariffs;
• current and changing regulatory environments;
• difficulty in obtaining distribution support; and
• current and changing tax laws.

Terex is currently the subject of government investigations.
Terex has received a Formal Order of Private Investigation from the SEC advising Terex that they have commenced
an investigation of Terex‟s accounting. Terex also received a subpoena from the SEC in an investigation entitled “In
the Matter of United Rentals, Inc.” This subpoena requested information to assist the SEC in its investigation of
Terex transactions during 2000 and 2001 involving United Rentals, on the one hand, and Terex or a Terex

subsidiary (prior to its acquisition by Terex), on the other. Terex has been cooperating with the SEC, and will
continue to cooperate fully to furnish the SEC staff with information needed to complete their investigation.
Until the SEC‟s investigation of the Company is complete, Terex is not able to predict the outcome of the SEC‟s
investigation. Terex has also received subpoenas from the United States Department of Justice, Antitrust Division
(“DOJ”), with respect to an investigation by the DOJ into pricing practices in the rock crushing and screening
equipment industry. Terex is cooperating fully with the DOJ in its investigation and will continue to cooperate fully
to furnish the DOJ with information needed to complete its investigation. Until the DOJ investigation is complete,
Terex is not able to predict its outcome.

The Company is in the process of implementing a global enterprise system.
Terex is implementing a global enterprise system to replace many of Terex existing operating and financial systems.
Such an implementation is a major undertaking both financially and from a management and personnel perspective.
Should the system not be implemented successfully and within budget, or if the system does not perform in a
satisfactory manner, it could disrupt and might adversely affect Terex operations and results of operations, including
Terex ability to report accurate and timely financial results.

Terex may face limitations on Terex ability to integrate acquired businesses.
Terex has completed a number of acquisitions since 2000 and regularly considers other acquisition opportunities. In
2007, Terex acquired Superior Highwall Miners Inc. and its affiliates (“SHM”) and in 2008 announced that Terex
has reached a definitive agreement to acquire ASV. The successful integration of new businesses depends on Terex
ability to manage these new businesses and coordinate their activities with those of other Terex operations to realize
expected synergies. While Terex believes they have successfully integrated acquisitions to date, the Company
cannot ensure that newly acquired companies will operate profitably or that the intended beneficial effect from these
acquisitions will be realized. Further, in connection with acquisitions, Terex may need to consolidate or restructure
Terex acquired or existing facilities, which may require expenditures for severance obligations related to reductions
in workforce.

                                         Business Overview3
Terex is a diversified global manufacturer of capital equipment focused on delivering reliable, customer relevant
solutions for the construction, infrastructure, quarrying, surface mining, shipping, transportation, refining and utility
industries. They operate in five segments: (i) Terex Aerial Work Platforms, (ii) Terex Construction, (iii) Terex
Cranes, (iv) Terex Materials Processing & Mining and (v) Terex Road-building, Utility Products and Other. Much
of their historic growth had been achieved through acquisitions; a majority of our growth has been generated from
existing operations since 2003. They have products manufactured in North and South America, Europe, Australia
and Asia and sold worldwide. Terex is focusing on expanding the business globally, with an increased emphasis on
developing markets such as China, India, Russia, the Middle East and Latin America.

                                 TEREX AERIAL WORK PLATFORMS
                                 Products: material lifts, portable aerial work platforms, trailer-mounted articulating
                                 booms, telescopic booms, construction trailers, trailer-mounted light towers, and
                                 other products.
                                 Customers: Construction and building maintenance industries

                                 TEREX CONSTRUCTION
                                 Products: Heavy construction equipment, including off-highway trucks, scrapers,
                                 hydraulic excavators and compact construction equipment, including loader
                                 backhoes, compaction equipment, mini excavators, site dumpers, skid steer loaders
                                 and wheel loaders.
                                 Customers: Construction, logging, mining, and industrial customers use these
                                 products in construction and infrastructure projects.

                                 TEREX CRANES
                                 Products: mobile telescopic cranes, tower cranes, lattice boom crawler cranes,
                                 boom trucks and telescopic container stackers,
                                 Customers: construction, repair and maintenance of infrastructure, building and
                                 manufacturing facilities.

                                  TEREX MATERIALS PROCESSING & MINING
                                  Products: crushing and screening equipment, hydraulic mining excavators,
                                  highwall-mining equipment, high mining trucks, and drilling equipment
                                  Customers: Construction, mining, quarrying and government customers use these
                                  products in construction and commodity mining.

                                  TEREX ROADBUILDING, UTILITY PRODUCTS AND OTHER
                                  Products: asphalt and concrete equipment, landfill compactors, and utility
                                  Customers: Companies who build roads and bridges, construct and maintain utility
                                  lines, trim trees, and for other commercial operations.

    Terex’s 2007 AR

Terex Corp. doesn‟t rely on any one segment for a bulk of its revenue and all segments have historically been about
the same percentage of total revenue for the company. Historically the aerial platforms segment has provided TEX
the largest amount of its revenue but revenue YOY for segments such as cranes and material and processing &
mining have been increasing showing TEX‟s commitment to grow all segments.

Terex Corp. records 30% of its revenue from the United States, the largest geographical contributor. Sales to
European countries are a big contributor to TEX‟s revenue with 26% of the total coming from this region. While
sales in the US have decreased from 2006 to 2007 TEX was able to still increase its 2007 total revenue by increases
it global sales in European countries, the United Kingdom, Germany, and all other countries. This trend shows that
TEX is becoming less dependent on sales in the US and is beginning to focus on the global demand for their
products. TEX touches on this subject in their 2007 annual report stating: We continue to benefit from global
economic strength, coming mainly from the unprecedented infrastructure needs of the developing world. Also
according to the 2007 annual report: Strong global demand for cranes, particularly rough-terrain and crawler
cranes, exceeded our production capacity and that of our suppliers.

                                           Terex’s History4
1986: Terex formed.

1995: Terex acquires PPM Cranes.

1996: Terex divests Clark Material Handling.

1997: Terex acquires Simon-RO and Telelect. BPI Handlers in Baraga, Michigan is also acquired this year.

1998: Mining business: Acquisitions of Payhauler and O&K Mining. Crane Offering: Acquisitions of American
Crane, TerexLift, Peiner and Gru Comedil.

1999: Terex builds a Light Construction business through the acquisitions of Amida, Benford and Bartell; and
becomes a leader in the crushing and screening industry with the acquisitions of Cedarapids, Re-Tech, Powerscreen,
BL Pegson and Finlay. Crane manufacturers added: Franna, Princeton and Kooi.

2000: Terex moves into the Compact Equipment category with the acquisitions of Fermec, a manufacturer of tractor
loader backhoes. Coleman Engineering is also acquired, adding to the Light Construction business. The company
divests Moffett, Princeton and Kooi.

2001: Terex continues to build the Roadbuilding business with the acquisitions of Jaques, CMI, Bid-Well and Load
King. The Atlas acquisition is also completed this year.

2002: Several acquisitions help to position Terex as a leader in their respective categories. Demag fills out the Terex
Cranes product offering and makes Terex a leading crane company. Genie is a leading manufacturer of Aerial Work
Platforms. The acquisitions of Schaeff and Fuchs make Terex a powerhouse in the Compact Equipment category.
Advance Mixer puts Terex in the concrete mixer business. Finally, the acquisitions of Pacific Utility and EPAC
provide company-owned distribution for Terex Utilities.

2003: Terex acquires controlling interest in TATRA, manufacturer of on/off-road heavy-duty vehicles for
commercial and military applications. The Company continued to expand its company-owned Terex Utilities
distribution with the acquisition of Commercial Body and Combatel.

2004: Terex acquires Noble CE, now known as Terex Mexico, which manufactures high capacity surface mining
trucks and fabricates components for other Terex businesses. Terex also acquires Reedrill, a manufacturer of surface
drilling equipment for use in the mining, construction and utility industries.

2007: Terex Corporation announced that it has acquired Superior Highwall Miners, Inc. (“SHM”). SHM,
headquartered in Beckley, West Virginia, is a leading manufacturer of highwall mining equipment for use in trench
mining, open pit mining, contour mining and auger hole mining applications. The total consideration for the
transaction was approximately $140 million payable in cash.

2007: Terex Corporation announced that it has acquired a controlling share of its ongoing joint venture, Terex
Vectra Equipment, which builds loader-backhoes, skid steer loaders and compaction rollers at a facility occupying
36 acres in Greater Noida, Utter Pradesh, India. Terex now owns 70 percent of the venture, which began operations
in 2003.

2008: Terex Corporation announced that it has reached a definitive agreement to acquire A.S.V., Inc. (NASDAQ:
ASVI) through a tender offer followed by a merger. Headquartered in Grand Rapids, Minnesota, ASV is a
manufacturer of compact rubber track loaders and related accessories, undercarriages and traction products. The
transaction is valued at approximately $488 million, or $18 per fully diluted share of ASV common stock.

    Terex IR

                                              Recent News5
WESTPORT, CT, March 4, 2008 – Terex Corporation (NYSE: TEX) today announced that it has completed the
acquisition of A.S.V., Inc. ASV is now a wholly-owned subsidiary of Terex and part of the Terex Construction
segment. A.S.V., Inc. designs, manufactures and sells rubber track machines and related components, accessories,
and attachments. Its purpose-built chassis and patented rubber track undercarriage technology are unique and lead
all rubber track loaders in innovation and performance. ASV products are able to traverse nearly any terrain with
minimal damage to the ground, making them effective in markets such as construction, landscaping, forestry and
agriculture. ASV‟s wholly-owned subsidiary Loegering Mfg., Inc. designs, manufactures and sells traction products
and attachments for the skid-steer industry.

WESTPORT, CT, February 20, 2008 -- Terex Corporation (NYSE: TEX) today announced net income for the fourth
quarter of 2007 of $174.0 million, or $1.67 per share, compared to net income of $100.9 million, or $0.97 per share,
for the fourth quarter of 2006. For the full year 2007, the Company reported income from continuing operations of
$613.9 million, or $5.85 per share, compared to income from continuing operations of $396.5 million, or $3.85 per
share, for the full year 2006. Net Sales: Net sales reached $2,586.3 million in the fourth quarter of 2007, an increase
of $556.8 million, or 27.4%, from $2,029.5 million in the fourth quarter of 2006. Income from Operations and
Operating Margin: Income from operations was $239.9 million in the fourth quarter of 2007, an increase of $70.5
million, or 41.6%, from $169.4 million in the fourth quarter of 2006. The fourth quarter operating margin was 9.3%,
up from last year‟s fourth quarter operating margin of 8.3%.

WESTPORT, Conn.--(BUSINESS WIRE)--Dec. 17, 2007--Terex Corporation (NYSE: TEX) today announced it has
increased and extended its share repurchase program, under which the Company now may purchase an additional
$500 million of the Company's outstanding common shares. This brings the total that may be repurchased under the
share repurchase program to $700 million, and extends the program period from its original expiration date of June
30, 2008 through June 30, 2009. As of today, the Company has purchased approximately $166 million of shares
under the repurchase program, as compared to approximately $74 million of shares repurchased as of September 30,

WESTPORT, Conn.--(BUSINESS WIRE)--Nov. 7, 2007--Terex Corporation (NYSE: TEX) today announced that it
priced $800,000,000 principal amount of its 8% Senior Subordinated Notes due 2017. Terex intends to use the net
proceeds from the offering to pay down outstanding amounts under its revolving credit facility and for general
corporate purposes, including acquisitions, capital expenditures, investments and the repurchase of its outstanding

WESTPORT, Conn – (BUSINESS WIRE)—May 14, 2007—Terex Corp. (TEX) today issued a statement upon the
company's listing as the number 4 best performing company on the 2007 Barron's 500 survey. The Barron's 500
survey provides a ranking of U.S. and Canadian Standard and Poor's 500 Index companies based on the basis of
one- and three-year cash-flow returns on investment sales growth and stock price performance. The data is analyzed
for Barron's by the Holt Division of Credit Suisse and the rankings do not reflect the views of Credit Suisse analysts.

    Yahoo! Finance

Ronald M. DeFeo was appointed Chief Executive Officer of the Terex on March 24,
1995 and Chairman of the Board on March 4, 1998. He is to remain Chief Executive
Officer of the Company through December 31, 2012. DeFeo joined the Company in
May 1992 as President of the Company then Heavy Equipment Group. Prior to
joining the Terex on May 1, 1992, Mr. DeFeo was a Senior Vice President of J.I. Case
Company, the former Tenneco farm and construction equipment division, and also
served as a Managing Director of Case Construction Equipment throughout Europe.
While at J.I. Case, Mr. DeFeo was also a Vice President of North American
Construction Equipment Sales and General Manager of Retail Operations.

         Thomas J. Riordan became President and Chief Operating Officer of Terex Corp. on January 3, 2007. Prior
to joining the Company, Mr. Riordan was Executive Vice President and Chief Operating Officer of SPX
Corporation, a diversified global industrial manufacturer. Prior to joining SPX, he was President of Portland, Oregon
based Consolidated Sawmill Machinery International. Prior to that, Mr. Riordan held a series of manufacturing and
management positions of increasing responsibility with J.I. Case and Borg-Warner Automotive

         Phillip C. Widman was appointed Senior Vice President and Chief Financial Officer of Terex Corp. on
September 16, 2002. Prior to joining the Company, Mr. Widman served as Executive Vice President, Chief
Financial Officer of Philip Services Corporation, an industrial outsourcing and metal services company, from 1998
to 2001, and as an independent consultant from 2001 to 2002. Prior to joining Philip Services, Mr. Widman worked
at Asea Brown Boveri Ltd. for eleven years in various financial and operational capacities in the transportation,
power generation and power distribution businesses.

         Stoyan Filipov was named President, Developing Markets and Strategic Accounts of Terex Corp. on
January 16, 2008. Prior to that, Mr. Filipov had been serving as President, Terex Cranes since January 1, 2004.
Filipov started with the Company on September 1, 1995 as Export Manager for one of the Company crane
operations in France.

Management Objectives:7

    Terex IR
    Terex 2007 AR

                                  Caterpillar, Inc. manufactures and sells construction and mining equipment, diesel
                                 and natural gas engines, and industrial gas turbines worldwide. Its machinery
business includes the design, manufacture, marketing, and sale of construction, mining, and forestry machinery. The
company was founded in 1925 under the name Caterpillar Tractor Co. and changed its name to Caterpillar, Inc. in
1986. Caterpillar, Inc. is headquartered in Peoria, Illinois.

             Trailing P/E          P/B             P/S              PEG             P/CF         EV/EBITDA
                14.19              5.45            1.08             1.07             9.2            11.31

                                     Deere & Company engages in the manufacture and distribution of products
                                   and services for agriculture and forestry worldwide. It operates in four
                             segments: Agricultural Equipment, Commercial and Consumer Equipment,
Construction and Forestry, and Credit. The company was founded in 1837 and is based in Moline, Illinois.

             Trailing P/E          P/B             P/S              PEG             P/CF         EV/EBITDA
                20.09              5.49            1.56             1.5             14.45           16.19

                       The Manitowoc Company, Inc. engages in the manufacture and marketing of cranes and
                      related products, foodservice equipment, and marine products in the United States and
                      internationally. It‟s Cranes and Related Products segment designs, manufactures, and
                      distributes crawler and truck mounted lattice-boom cranes. The company's Foodservice
Equipment segment designs, manufactures, and markets commercial ice-cube and flaker machines and storage bins;
refrigerators, freezers, etc. It also designs and constructs military and commercial vessels, double-hulled tank
vessels, articulated tug and barge units, dredges, dredging support equipment, and bulk cargo self unloading
solutions, as well as engages in large ship construction projects and repair work.. The company was founded in 1853
and is based in Manitowoc, Wisconsin.

             Trailing P/E          P/B             P/S              PEG             P/CF         EV/EBITDA
                  16               4.26            1.44             0.39            13.64           9.482

    Yahoo! Finance, Terex IR

                          Terex and The Global Economy9
While there is no doubt that
there     is     considerable
pressure on the U.S. housing
industry, and while there are
concerns the United States is
currently in a recession, we
like Terex‟s prospects for a
phenomenal 2008 since they
aren‟t reliant on any
customer for more than 10%
of sales and distribute their
products through a global
network of dealers and
rental companies.      While
Terex is a U.S. based
company, only 30% of their sales come from business in the United States. In 2007, Terex continued to benefit
from global economic growth driving strong end market demand. Terex focused on numerous internal initiatives to
grow sales and profitability to transform from a holding company to an integrated operating company. TEX has
also benefited from global growth driven by strong economies in North America and Western Europe and improving
standards of living around the world.

Although Terex expects slower economic growth in 2008 in North America, and to a lesser extent in Western
Europe, the Company‟s strategy of product and geographic diversity is expected to drive sales growth that will allow
Terex to remain on pace to achieve their goal of $12 billion in sales with a 12% operating margin by 2010. Demand
for infrastructure and energy has resulted in extraordinary demand for Terex‟s cranes. Strong commodity demand
driven by developing economies has increased demand for the Company‟s mining equipment. Increasing labor rates
that require productivity enhancing solutions combined with improving global safety standards is driving demand
for Terex‟s aerial work platforms products. Terex‟s construction products faced a mixed year in 2007, with
weakness in North America partially offset by strength in other geographies, particularly in Western Europe, for
certain types of heavy equipment, and in both Western and Eastern Europe for compact construction equipment.
The Company‟s road building and utility businesses, which are primarily North American focused, remained weak,
as a result of continued low levels of governmental spending on infrastructure. We believe road building will
continue to be Terex‟s weakest segment in 2008, although this area of Terex‟s business accounted for less than 3%
of total sales in 2007.

    Terex 2007 AR

Compact construction equipment is an early cycle product, aerial work platforms and heavy construction equipment
are mid-cycle equipment, and cranes and road building equipment are late cycle equipment. This relatively balanced
mix of product types helps to moderate cyclical sales movements for Terex as a whole, as demand for one product
may weaken, but be offset by demand for products in a different cycle. A balanced geographic sales mix also helps
moderate demand swings for Terex‟s products, as demand in one region may strengthen or weaken over different
times as compared to economies in other geographies. The downturn in the world economy in 2007 demonstrated
the value of geographic diversity, as construction equipment sales slowed in North America but were strong in
Europe. To further Terex‟s geographic sales mix, management is intent on growing the Company‟s presence in
developing markets as Terex works towards our goal of generating approximately 1/3 of our sales from the
Americas, 1/3 from Europe, Africa and the Middle East and the remaining 1/3 from Asia and Australia.

Global dynamics expected to continue to drive demand for Terex‟s equipment include creating infrastructure in
developing economies, repairing/replacing infrastructure in North America and Western Europe, increasing labor
costs and strengthening safety standards globally. Developing economies are building infrastructure at a rapid pace,
as demonstrated in countries and regions around the world such as the Middle East, and particularly Dubai, cities in
Eastern China such as Shanghai and Beijing, and Eastern Europe. This growth is expected to continue as profits
from oil exports are invested by exporting countries such as Russia and the Middle East and as western Chinese
cities develop. Decaying infrastructure and historical under-investment in infrastructure to support population
growth are expected to continue to drive demand for equipment in North America and Western Europe. This global
infrastructure demand favorably impacts all five of Terex‟s segments, particularly Cranes and Materials Processing
& Mining. Aerial work platforms and compact construction equipment such as mini excavators are benefiting from
higher labor costs that drive demand for productivity enhancing solutions. Stricter safety standards are also driving
demand for equipment such as aerial work platforms as countries recognize the inherent risks of working at height
on ladders and scaffolding.

                            Global Infrastructure Demands10
Thirteen people died and more than a hundred were injured in August 2007 when an interstate highway bridge near
downtown Minneapolis collapsed into the Mississippi River. Within a day, news outlets from all over the world had
seized a study conducted for the Minnesota Department of Transportation detailing notable weaknesses in the
approach spans of the 40-year-old bridge and on its main truss.

“A bridge in America shouldn‟t just fall down,” U.S. Sen. Amy Klobuchar of Minnesota said at the time. But that‟s
how it is with roads, bridges, electric grids and other infrastructure: Not many people think about what shape
they’re in until they fail.

In the United States, the failures are mounting as the nation‟s infrastructure grows older and increasingly inadequate
to growing demands. The American Society of Civil Engineers estimates that the U.S. would have to invest $1.6
trillion in its infrastructure over five years to bring it into good repair. As the case in Minnesota demonstrates,
insufficient infrastructure at times poses a threat to life. Hurricane Katrina offers another stark example. The death
toll is estimated at more than 1,800 people; hundreds died in New Orleans from flooding after high water breached
the federally constructed levee system. Less dramatic but far more common are the inconveniences that result from
subpar infrastructure. A good example is the nine-day blackout in Queens, N.Y., that affected some 170,000 people
in July 2006 when high-voltage feeder cables failed. Some of those cables were 60 years old. Traffic continues to
rob Americans of time and money on a daily basis. In its 2005 Urban Mobility Report, the Texas Transportation
Institute estimated that road congestion results in 3.7 billion hours of travel and 2.3 billion gallons of wasted
fuel annually. The cost of congestion across the entire transportation system nears $200 billion each year,
according to the U.S. Department of Transportation.

The problem is hardly unique to the United States. In 2006, faced with the worst drought in a century, London saw
its water problems compounded by leaky pipes that dated back to Victorian times. Thames Water, which is working
to replace 1,100 water mains, says drier summers related to climate change have heightened the urgency of the
work. Even as old problems are being solved, new ones are brewing. Electricity use in China, India and Latin
America is growing between 4 and 5 percent per year, according to consulting firm Booz Allen Hamilton. By
2020, the combined electrical consumption of these three locales is expected to exceed 12,000 terawatt hours,
according to International Energy Agency projections. That‟s double to triple the expected demand of the United
States and Canada, where use is increasing at 2 percent annually.

The American Society of Civil Engineers’ report card, which included the $1.6 trillion repair estimate, was
released in 2005. It gave U.S. infrastructure an overall grade of D, and also issued low grades to a range of
individual categories, including energy, roads, drinking water, aviation and transit. Mexican President Felipe
Calderón presented Mexico‟s 2007-2012 National Infrastructure Program in July 2007, saying it was needed both to
increase the competitiveness of Mexico‟s economy and to provide equal opportunities for its people.
The plan calls for spending $234 billion, or $39 billion annually –about 4% of Mexico‟s GDP.

Cost estimates to upgrade global infrastructure vary, but all are staggering. An April 2005 review by Britain’s
Foresight Programme estimated global infrastructure needs at $32 trillion through 2030. An estimate by Booz
Allen Hamilton suggests that modernizing urban water, electricity and transportation systems over the next
25 years would require $41 trillion – a figure roughly equal to the 2006 market capitalization of all shares
held in all stock markets in the world.

     U.S. Global Investors Report

In emerging markets, the play is massive build-out to support future growth. For the developed world, the focus is
on repair and replacement. A larger, more urban population has helped to create the world‟s pressing infrastructure
needs. The global population is expected to grow at an average rate of 1.6 percent annually, according to the
United Nations. At that rate, by 2030 there will be 8.3 billion people on Earth, with six out of every 10 living
in cities. That will put enormous pressure on water, energy and sanitation systems, as well as on hospitals and
schools. Global economic growth, particularly in developing countries, also drives the need for more and better

China is undergoing the biggest infrastructure boom in history. A quarter-century of rapid urbanization and
industrialization has overwhelmed the nation‟s transportation infrastructure and created huge bottlenecks. As a
result, China’s current Five-Year Plan, which runs through 2010, calls for:
• $175 billion for railroads
• $200 billion for airports and subways
• $80 billion for highways
In addition, $30 billion is needed for urban water supply, and $40 billion for wastewater treatment. In the
utilities space, Morgan Stanley estimates that $346 billion will be required for electricity generation and distribution
between 2006 and 2010, leading to a generating capacity increase of nearly 50 percent over that period.

India‟s Finance Minister Palaniappan Chidambaram told legislators in September 2007 that India must raise its
investment in infrastructure to 8 percent of GDP over the next five years – up from less than 5 percent currently
– if the economy is to sustain its 9 percent annual growth rate. Chidambaram pointed specifically at congested
highways, airports and ports. A government panel has estimated India’s infrastructure needs at $475 billion
during the current five-year plan, which runs until 2012. Merrill Lynch forecasts that emerging markets will
spend more than $1 trillion on infrastructure over the next three years.

                                             SWOT Analysis

    -      Global strategy and demand has caused Terex to become less dependent on domestic sales.

    -      Terex has a diversified portfolio of products that allow industrial, construction, mining, or logging
           customers a one stop shop.

    -      Terex has proven its ability to increase sales and margins by controlling COGs.

    -      No one customer of TEX accounts for more than 10% of sales.

    -      Terex‟s portfolio contains a mix of early, mid, and late cycle products combined with mining products that
           are tied to global commodity demand which helps TEX moderate cyclical sales movements.


    -      Business is highly cyclical and weak general economic conditions may affect sales.

    -      Business is sensitive to fluctuations in interest rates because it becomes more costly for customers to
           borrow money to pay for equipment they buy from Terex.

    -      Many of Terex‟s customers are dependent on government funding highway construction, maintenance and
           other infrastructure projects. A decrease or delay in government spending could cause revenues and profits
           to decrease.


    -      Continue to develop relations with world developing markets such as China, Russia, India, the Middle East,
           and Latin America.

    -      Continuation of increase in demand for infrastructure and energy which results in extraordinary demand for
           Terex cranes.

    -      Ability for Terex to cash in on developing economies which are building infrastructure at a rapid pace. This
           is demonstrated in Eastern China (Shanghai and Beijing) and Eastern Europe.


    -      Extreme movements in material costs for material used in TEX‟s manufacturing processes such as steel,
           castings, engines, tires, and hydraulic cylinders.

    -      Inability of suppliers to keep up with TEX‟s increased need for materials due to higher global demand for
           the same materials.

    -      Pending government investigation.

                                          Terex’s Backlog11
Terex‟s backlog orders are expected to be filled within one year but it isn‟t guaranteed to be filled within that time.
Since parts order from Terex is on an as-ordered basis Terex‟s backlog is made up of primarily new equipment.
Terex‟s management see backlog as a good indicator on the performance of their business. They also use backlog to
forecast future results. The discrepancy with backlogs is that high backlogs can indicate a high level of future sales
but may also reflect a high level of production delays. These delays could result in future order cancellations from
disappointed customers. On the other hand small backlogs may indicate a low level of future sales but may also
reflect a rapid ability to fill orders that is appreciated by our customers. Terex‟s current backlog totals
approximately $4.2 billion:

Reasons for Backlog Changes:
        - Aerial Work Platforms: Remained unchanged because of strong demand in Europe and developing
             markets offset moderating demand in North America.
        - Construction: Increase in backlog reflects because of strong demand in Europe for all of our
             construction products and production challenges in ability to deliver products to customers arising
             from continued supplier constraints for select components.
        - Cranes: Increased because of strong global demand for cranes, particularly rough-terrain and crawler
             cranes which exceeded production capacity and that TEX‟s suppliers.
        - Materials Processing & Mining: Increased because of strong demand for both materials processing
             equipment and mining equipment. Also nonresidential construction, infrastructure and recycling needs
             are driving demand for portable crushing and screening equipment and strong global commodity
             demand is driving sales of mining equipment.
        - Road-building, Utility Products and Other: Decreased because backlogs for utility and concrete mixer
             trucks were higher than usual in 2006 due to increased purchasing ahead of a tighter EPA engine
             requirement that took effect in 2007.

     Terex’s IR

                               Analyst Recommendation12

Analysts appear to be very optimistic about Terex Corporation‟s future prospects for growth and high returns to
shareholders. The current consensus recommendation is listed as a market outperform. Currently, there are eight
buy recommendations, one market outperform estimate, three holds and one analyst believes the company will
underperform the market. The mean target price for Terex is estimated at $84.27 per share, with a median estimate
of approximately $85.00. Interestingly, the low price target of $67 is ahead of the stock‟s current price of $65.97.
The highest estimated target price of $100 would conclude the stock finishing the year near its 52-week high of
$96.94, representing approximately a 47% upside. If we apply Terex‟s historic P/E ratio with the average EPS
estimate of $6.94 for FYE 2008 then we may conclude a stock price of $106.63, representing nearly a 62% upside.
While we feel Terex is undervalued, a stock price of $76.95 is given applying Terex‟s current P/E multiple of 11.09
with the average EPS estimate of $6.94. This approach provides a 17% upside.

CONCLUSION: Analysts appear optimistic about Terex and their EPS estimates are in-line with the Company‟s
expectations of $6.65-$7.15 per share for FYE 2008. Applying analyst estimates we conclude a target price of
$106.63 and $76.96, a 62% upside and 17% upside respectively.

     Yahoo! Finance

                                          Growth Analysis13
                                               Terex’s Growth Rates
                        2007              2006              2005                     Industry               Sector
      Sales            16.31%            19.50%            22.06%                     17.58%                12.91%
       EPS             34.21%            52.31%           -70.86%                     25.68%                15.81%

Terex, with a market cap of $6.8 billion, is still rapidly growing both EPS and sales figures at rates greater than their
peers, sector and industry. The Company has experienced tremendous revenue and EPS growth since 2003 due to
the number of acquisitions the company has made. Terex is also expanding operations and growing revenue through
joint ventures. As reported on December 12, 2007, Terex acquired a controlling share of its ongoing joint venture,
Terex Vetra Equipment, which build loader-backhoes, skid steer loaders and compaction rollers at a facility
occupying 36 acres in Greater Noida, Utter Pradesh, India. We are excited about such joint ventures because we
feel they will further expand Terex‟s geographic footprint and overall market. This joint venture, in particular, is
appealing because Terex should be able to derive improved sales figures in India by tapping into India‟s already
impressive infrastructure development which is estimated to total “$500 billion in road, port, housing, railway,
airport, and telecommunications infrastructure over the next five years”.

                                          Peer Growth Rates
                   TEX              Peer Avg.          CAT                    DE               MTW
     Sales        16.31%             24.04%          10.37%                 17.53%            44.23%
      EPS         34.21%             62.85%          13.72%                 60.03%            114.81%

Simply put the construction & agricultural machinery industry is booming. With continued expansion in U.S.
infrastructure needs, and the needs of the rest of the world, there will be a demand for heavy-duty machinery capable
of completing such complex tasks. In comparison to Terex, Caterpillar Inc. (NYSE: CAT) grew sales at 10.37% and
grew EPS by 13.72%, Deere & Co. (NYSE: DE) increased sales by 17.53% and EPS by 60.03% , and Manitowoc
Co. Inc. (NYSE: MTW) grew sales by 44.23% and EPS by 114.81%. While Terex‟s numbers may not be as
impressive as those of MTW and DE at first glance, the Company sets itself part from its peers through its exposure
to the international markets. Caterpillar, Deere and Manitowoc all will likely face more difficulties growing their
business in the difficult conditions currently found in the United States, where as Terex derives only 30% of their
sales through operations based in the United States.

                                       Terex’s Growth Estimates:

     Terex’s 2007 AR

                                             12 x 12 x ‘1014
                                                                     Going forward, CEO Ron DeFeo is committed
                                                                     to the goal of: “12 x 12 x „10”. This equates to
                                                                     a goal of $12 billion in sales with a 12%
                                                                     operating margin post 2010. We feel these are
                                                                     impressive goals, as they equate to sales
                                                                     growth of over $2 billion, or a 55% increase in
                                                                     revenue, and an increase in the Company‟s
                                                                     current operating margin of approximately by
                                                                     nearly 200 basis points. While Terex does
                                                                     have an enterprise value of $6.78 billion, the
                                                                     Company seems poised to continue upon its
                                                                     current growth stage.          While we are
                                                                     conservative with our estimated and do not
                                                                     believe Terex will be able to maintain their
                                                                     five-year average sales growth of 24%, we
                                                                     believe there will continue to be a strong
demand for Terex equipment, particularly in emerging markets and areas looking to meet significant infrastructure
needs. We‟ve applied a growth rate of 14% for years 2008-2009, and a very rational growth rate of 10% for years
2010-2017 which is in-line with analyst expectations and those of Terex‟s senior management.

Terex is well diversified company in respect to their geographic footprint operating in over 100 countries around the
world. Currently, the United States contributes approximately 30% of the total revenues recognized by the
Company while Europe/Africa/Middle East account for 48% of sales, Asia/Australia bring in 14% of total revenues
and the other Americas represent revenues of 8% of Terex‟s total sales. Moving forward, Terex expects the
majority of its sales growth coming from countries other than the United States.

     Terex’s 2007 AR

                                           ROE & ROIC15
Return on equity is a measure of a corporation‟s profitability that discloses how much profit a company generates
with the money shareholders have invested. At first glance, Terex has a very sound return on equity of 26.21% for
2007. This is an improvement over the 2006 and 2005 figures of 22.84% and 16.28%. While Terex‟s equity
multiplier has decreased due to their decreasing reliance on debt, Terex‟s profit margin has more than doubled since
2005, growing from 3.07% to 6.72%.

                                               DuPont Model
                                                       2007               2006         2005
                              Profit Margin            6.72%              5.23%        3.07%
                           Total Asset Turnover         1.45               1.60         1.47
                             Equity Multiplier          2.70               2.73         3.62
                                   ROE                26.21%             22.84%       16.28%

While we are impressed with Terex‟s 26.21% ROE, it is important to note that in comparison to Caterpillar, Deere
and Manitowoc, Terex has the lowest return on equity. In general, Terex, Deere and Manitowoc have fairly similar
ROE figures, but Caterpillar is certainly the best in the industry with an outstanding return on equity of nearly 45%.

                                                    Peer ROE
                                     TEX          DE       CAT           MTW
                                    26.21%      26.72% 44.99%           31.41%

However, Return on Invested Capital, or ROIC, continues to be the unifying metric Terex uses to measure operating
performance, not ROE. ROIC measures return on the full enterprise-wide amount of capital invested in Terex‟s
business, as opposed to return on shareholder‟s equity that only incorporates book equity, and is thus a more
accurate and descriptive measure of our performance. In 2007, Terex achieved an ROIC of 43.3%, compared to
38.4% ROIC in 2006 and our 2007 ROIC target of 41.9%. The ROIC metric is intended to compare total enterprise
operational return to a total enterprise denominator that is based on amounts that include invested capital of
discontinued operations in the balances.

     Terex’s 2007 AR

Terex has been making excellent strides in increasing its profitability over the past three years. Since 2005, Terex
has increased its gross margin by 40%, improved their EBITD Margin by 84%, increased their ROA by 100% and
has improved its ROE by 62.5%. However, the Company is still behind the industry average in regards to gross
margin and EBITD margin. We are impressed with management‟s “12 x 12 x „10” operating objective and believe
Terex will continue with improvements in profitability, eventually exceeding their industry averages.

                                        2007          2006           2005             Industry              Sector
          Gross Margin                  21%           19%            15%                31%                  22%
          EBITD Margin                  11%            9%             6%                13%                  12%
              ROA                       10%            8%             5%                 9%                  7%
              ROE                       26%           23%            16%                25%                  20%

                                       Financial Strength17
Similar to Terex‟s profitability and growth measures, the Company‟s financial strength has continued to improve
over the past five years. The Company has become far more liquid, as Terex‟s quick ratio and current ratio have
risen significantly since 2005. The Company should easily be able to meet all of their debt obligations. It is also
important to note how drastically Terex‟s interest coverage ratio has improved. In 2005 Terex has an interest
coverage ratio of 3.87, while in 2007 the figure jumped to 14.51. The amount of cash the Company is carrying has
significantly risen over this same time period. Terex currently has $1.27 billion in cash. This is equivalent to nearly
$12.72 per share.

                                                  Financial Strength
                                                 2007        2006           2005            Industry            Sector
                   Quick Ratio                   1.31        0.95           1.04              1.13               0.94
                  Current Ratio                  2.20        1.69           1.90              1.93               1.58
               LT Debt to Equity                 0.56        0.31           0.93              0.51               0.90
               Interest Coverage                14.51        7.54           3.87              14.78             15.01
                 Cash Per Share                 $12.72      $6.70           $5.60               -                  -

In comparison to their competitors in the construction & agricultural machinery industry, Terex is well in-line with
their peers‟ financial strength measures. However, the Company has considerably more cash than their peers. In
comparison, Caterpillar has $1.38 per share, Deere holds $5.05 per share and Manitowoc has $2.82 per share. With
this significant cash holding, we believe the Company will continue to complete acquisitions to grow the business
and continue to improve its standing as one of the industry leaders in the construction industry.


                                      Asset Management18
Unlike Terex‟s growth, profitability and financial strength measures, the Company‟s asset management has
continued to remain fairly similar over the past three years. Over this time period, Terex has an average AR
turnover of approximately 8.02 which is higher than the industry average of 6.34. The Company‟s inventory
turnover average of 3.95 is well below the industry average of 5.98. The largest area of concern here is the time in
which it takes Terex to collect on their receivables. While the Company‟s products are very expensive, we‟d like to
see management improve on their 47.77 days worth of receivable figures for 2007. We do believe their certainly is
plenty of room for improvement in the way Terex manages their assets, one of the selling points of this Company is
their management. CEO Ron DeFeo has managed Terex from since 1995, growing the business significantly over
this time. On January 1, 1995 TEX traded for $3.25 per share, today it trades for $65.97. Mr. DeFeo has essentially
increased the value of the business nearly 1,900% over this period. He has aggressive goals we believe the
Company will be able to meet by 2010. By doing so, the Company will be forced to improve on their asset

                                                 Asset Management
                                                  2007      2006             2005           Industry          Sector
                    AR Turnover                   7.64      8.04             8.38             6.34             8.03
                Inventory Turnover                3.75      4.13             3.95             5.98             9.09
                Days Worth of Rec.                47.77     45.39            43.57              -                -
                   NWC Turnover                   3.51      5.44             4.46               -                -
               Total Asset Turnover               1.45      1.60             1.47               -                -
                  Capital Intensity               0.69      0.63             0.68               -                -

                                      Debt Management19
Terex‟s debt management figures are in-line with their peers in the construction & agricultural machinery industry.
The Company‟s capital structure has changed over the past three years with the Company taking on less debt than
equity. We are very comfortable with Terex‟s impressive EBITD/I ratio of 14.51, which is a drastic improvement
from their 3.87 figure in 2005. One area of concern in Terex‟s days worth of payables of 48.45 vs. their days worth
of receivables of 47.77. We‟d like to see the Company collect on their money much more quickly than the time in
which they pay off their accounts payable.

                                               Debt Management
                                              2007      2006             2005           Industry           Sector
             LTD to Equity                    0.56      0.31             0.93             0.51              0.9
              AP Turnover                     7.53      7.40             6.74               -                -
                EBITD/I                       14.51     7.54             3.87               -                -
           Days Worth of Pay.                 48.45     49.35            54.12              -                -


                                   Relative Value Analysis20

Terex is below its historic average P/E, P/B and P/EBITDA but has a considerably higher P/CF and a higher P/S
ratio than their historic average indicates. By assuming all of these figures hold similar weights, we arrive at an
average price of $74.26 per share, an upside of 12.56% from the current trading level of $65.97.

TEX is trading well below their P/E, P/B, P/S and P/CF industry averages. We believe this represents a strong
potential upside in the stock‟s price. As the valuation relative to recent industry indicates, the stock traditionally has
traded at a discount to its peers. If the Company were to be valued similar to the industry averages, and if all
valuations are weighted equally, we believe TEX would be trading near $105 per share, up nearly 60% from their
current price.


Relative to their peers Caterpillar, Deere and Manitowoc, Texera is undervalued. The Company‟s P/E, P/B, P/S,
PEG, P/CF and EV/EBITDA all trade at a significant discount to their peer averages. The only Company in this
group that trades at a discount to Texera is MTW‟s PEG ratio. Applying similar weights to all of these valuations
we arrive at a price of $102.30, or a 55% upside.

Price/Book Trend from 2003-2007                                      Price/Earnings Trend from 2003-2007

                                      Price/Book Trend from 2003-2007

                             Pro Forma Income Statement

Revenue Growth: Revenue growth for 2008-2009 of 14% was chosen because it was TEX‟s historical 5-year
average growth rate in sales. This is conservative figure because the most recent 5-year growth rate (2003-2007) was
24%. We decided to lower the growth rate to 10% for 2010-2012 to be in line with Value Line‟s estimates. In the
annual report the CEO of TEX said their revenue goal in 2010 was $12 million and comparing this to our projected
revenue of $13 million it is a little high but still acceptable in our opinion.

COGS: Cost of goods sold was taken as a percent of sales (82.75%) but we also applied the negative growth (-
2.15%) to it because TEX has historically had lower percentage of sales figures as sales increase. For example the
COGs figure for 2008 was calculated by taking the 2.15% out of the 82.75% and using the new figure of 80.6% to
calculate the COGs.

SG&A: Selling, general, and administrative expenses were calculated by using a 5-year average percent of sales of
10%. This was used for all SG&A calculations.

Interest Income (Exp) & Tax Rate: For the interest income (exp) calculation a 5-year average growth rate of -7%
was used for all of the years. As for the tax rate it was taken from Value Line and was held constant from 2008-
20012 at 36%.

Shares Outstanding: We decided to decrease TEX‟s shares outstanding first then increase them in 2010 because of
the stock buyback program they announced. TEX has $534 million dollars left in its stock buyback program which
would equal around 8 million shares at today‟s price. Since the stock buyback program is has expiration date of June
30, 2009 we decided to take half of the 8 million and apply it the 2008 EPS calculation and apply the other half to
the 2009 EPS calculation. For shares outstanding for 2010-2012 we added 1 million shares each year, which
followed the trend TEX as shown.

EPS: We projected an EPS in 2008 of $6.12 which is below both Value Line‟s and Bloomberg estimates of $7.60
and $6.89 respectively. Bloomberg also expects the 2009 EPS figure to be $7.73, which is also above our estimate of
$7.33. From 2008-2012 the pro forma showed an EPS growth of 64%, which is annualized at 12.8% a year.

                                         FCFF Valuation

Sales Growth: The projected sales growth for 2008-2009 was kept at 14% for the same reasons explained in the pro
forma section. The projected sales growth for 2013-2017 was lowered to 10%, which was also explained in the pro
forma section. The perpetual sales growth was put at 5% the average growth of GDP.

EBIT: To calculate EBIT we took out the COGs and SG&A from revenues. We calculated the COGs and SG&A
figures the same way it was done the pro forma section too.

Depreciation: For depreciation we used the most recent 5-year average percent of sales because it was the most
consistent option we found. The five year average was 3.7%.

Investment in Fixed Capital: To project the investment in fixed capital we forecasted TEX‟s PP&E figures for 2008-
2018 using the 5-year average percent of sales (10%). The percent of sales approach was used because it was the
most consistent approach we could find relative to PP&E growth. Following the calculation of projected PP&E
figures for 2008-2018 we were able to find the projected investment in fixed capital figures for those years.

Investment in Working Capital: We took a little more complicated approach to this figure due to the inconsistency of
TEX‟s historical change in investment in working capital. First, we decided to find the investment in fixed capital
amounts for 2003-2008. We then calculated the percent of sales for these figures. Following this we found a five 5-
year average percent of sales change in fixed capital of 3.5%. We took this 3.5% and applied it to each year
projected sales figure to find the projected investment in working capital.

WACC: The weighted average cost of capital was calculated as follows using the following formula and the figures
provided above in the FCFF diagram.

Price Prediction: After discounting the cash flows to find the PV of the cash flows we found the firm’s
terminal value to be $16,262.57 with a PV of $4,822.49 We then continued the calculation by subtracting the
book value of the debt, adding back cash, and dividing that figure by number of shares outstanding to find a
stock price of $127.19. An upside calculation and comparison for TEX’s stock price today, 52-week high, and
52-week low is provided in the FCFF diagram above.

                      Balance Sheet21

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                      Income Statement22

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                  Value Line Report23

     Value Line


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