Dec 02, 2023

5 Solid Opportunities in Construction & Mining Equipment

The construction and mining equipment industry plays a crucial role in infrastructure development and mineral resource extraction. Although clubbed together, the drivers for the construction equipment industry are different from those of mining equipment, since they cater to different markets (with some overlaps).

BlueWeave Consulting estimates that the construction equipment market will grow at a CAGR of 6% between 2022 and 2028, driven by the government's infrastructure drive, evolving safety and security mandates and increased investment by both private and public spenders. The demand in the housing market is also at an unprecedented level because of continued growth in the population, a growing number of new families and inadequate housing supply going back several years.

Additionally, increasing local demand and geopolitics is driving demand for onshoring or near-shoring production. While costs may increase to a certain extent, the pandemic led to the realization that a diversification in the supply chain is desirable. This is another driver of construction activity in the U.S., and therefore, of construction equipment.

BlueWeave expects the earthmoving equipment, aerial work platforms, concrete machinery, material handling equipment and lifting equipment to fuel market expansion.

However, this opportunity is not without its challenges. An economic slowdown, rising raw material prices, competition from foreign players and high equipment costs are factors to consider in this regard.

The mining sector is more globally interconnected, so it makes sense to consider the global demand and then narrow things down to the Americas. Grand View Research estimates that the global mining equipment industry will grow at a CAGR of 5.1% between 2023 and 2030, driven by rising demand for mineral resources (mainly in construction), increased adoption of automation and digitization (for enhanced operational efficiency and productivity) and increased focus on sustainability (for example, reduction in water and energy use, electrification, etc.).

While the surface mining segment will remain the leading consumer of mining equipment during this period driven by emerging markets China, India and Brazil, the underground equipment market in developed markets like North America and Europe will be the faster-growing. Safety will be an important factor in underground purchases as will be the need to go deeper for mineral deposits.

Because of the high cost of equipment, it is the norm for many users to buy second-hand equipment or get into leasing arrangements. On the other hand, given the cost of equipment, this is generally part of the long-term investment plan. Therefore, the volatility in mineral prices that squeeze miners’ profitability does not result in similar fluctuation in demand. Low-cost producers in markets such as China do pose a competitive challenge however.

As evident from the above arguments and the Zacks Industry Rank of #5 (top 2% of 250+ industries), the positives far outweigh the challenges, which is why there are a number of attractive plays in the market right now:

Astec Industries, Inc. (ASTE)

Chattanooga, TN-based Astec is a global company specializing in the design, engineering, manufacturing and marketing of equipment and components for road building and construction activities. The company operates in two segments: Infrastructure Solutions and Materials Solutions. The Infrastructure Solutions segment offers asphalt plants, concrete material handling systems, asphalt pavers, and more. The Materials Solutions segment focuses on crushing equipment, bulk material handling solutions, vibrating equipment, and mineral processing equipment.

The Zacks Rank #1 stock has an attractive outlook. Analysts expect it to generate revenue and earnings growth in both 2023 and 2024 and they have been raising its estimates in the last 30 days (4.7% for 2023 and a couple of cents for 2024). In the last quarter it beat estimates by 52.5%.

Caterpillar Inc. (CAT)

Irving, TX-based Caterpillar, the world's largest construction and mining equipment manufacturer and Dow component, is recognized as a bellwether of the global economy. It has a product portfolio spanning infrastructure, construction, mining, oil & gas, and transportation sectors and an extensive dealer network spanning 191 countries, supporting its 20 brands and over 4 million products. Its main operating segments are Machinery, Resource Industries, and Energy & Transportation. Leveraging innovation and telematics technology, Caterpillar has more than 1.2 million connected assets.

The Zacks Rank #1 stock is expected to see very strong growth this year followed a flattish performance in the next. But estimates for both years are up in the last 30 days (1.6% for 2023 and 1.6% for 2024). It beat estimates by 29.6% in the last quarter.

Komatsu Ltd. (KMTUY)

Tokyo, Japan-based Komatsu is a global manufacturer and seller of construction, mining and utility equipment, as well as forest and industrial machinery. Its operating segments are Construction, Mining and Utility Equipment; Retail Finance; and Industrial Machinery and Others. Komatsu's product offerings include excavators, wheel loaders, bulldozers, motor graders, harvesters, forwarders and more. Komatsu also provides services such as retail financing, equipment rental, remanufactured products and support services.

The Zacks Rank #1 stock's earnings are expected to decline this year before bouncing back in the next. That said, both 2023 and 2024 estimates are up in the last 30 days (8.5% for 2023 and 7.8% for 2024). Komatsu beat estimates by 30.0% in the last quarter.

Terex Corporation (TEX)

Norwalk, CT-based Terex Corp. is a global manufacturer and seller of aerial work platforms and materials processing machinery. The company operates in two segments: Aerial Work Platforms (AWP) and Materials Processing (MP). The AWP segment offers a range of equipment for construction and maintenance activities, including portable lifts, aerial work platforms and scissor lifts. The MP segment focuses on materials processing and specialty equipment such as crushers, screens, conveyors and wood processing equipment. The company also provides financing solutions. Some of the industries Terex serves are construction, infrastructure, mining and recycling.

The Zacks Rank #1 stock's revenue and earnings are expected to grow double-digits this year, followed by a more or less consistent performance next year. Its 2023 estimate increased 4.2% while the 2024 estimate increased 3.4%. It beat the Zacks Consensus Estimate by 52.4%.

The Manitowoc Company, Inc. (MTW)

Milwaukee, Wisconsin-based Manitowoc is a global provider of engineered lifting solutions, serving customers across the Americas, Europe, Africa, the Middle East and the Asia Pacific. The company specializes in designing, manufacturing and distributing a range of cranes for the energy, petrochemical, infrastructure, and residential construction markets. These include crawler-mounted lattice-boom cranes (Manitowoc brand), top-slewing and self-erecting tower cranes (Potain brand), mobile hydraulic cranes (Grove, Shuttlelift, and National Crane brands), and hydraulic boom trucks (National Crane brand).

Manitowoc also offers aftermarket services such as parts sales, maintenance, technical support and training. The company caters to dealers, rental companies, contractors and government.

The Zacks Rank #1 stock is expected to see some growth both this year and the next. The 2023 estimate is up 8.9% and the 2024 estimate up 5.8%. It beat estimates by 820% in the last quarter.

One-Month Price Performance

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Astec Industries, Inc. ( ) Caterpillar Inc. ( ) Komatsu Ltd. ( ) Terex Corporation ( ) The Manitowoc Company, Inc. ( ) One-Month Price Performance