Based on our belief that the construction markets served by equipment manufacturer Manitowoc (MTW; recent stock price 45) will remain vigorous for some time to come, we think the company will continue to post solid gains in sales, profits, and free cash flow in the next few years. We think the company will be particularly helped by its recent efforts to address emerging markets.
The company's crane division, which accounts for the large majority of its revenues and profits, has been in the midst of a substantial business upturn over the past few years. Based on our belief that construction will remain robust in the fields of infrastructure and energy, the primary factors behind Manitowoc's gains of recent years, we see the company's operating performance remaining strong for an extended period.
Based on these factors, our valuation models find the shares' valuation compelling, and our recommendation is 5 STARS (strong buy).
Company Profile
Wisconsin-based Manitowoc is a manufacturer of cranes, food-service equipment, and marine vessels, but its crane operations have grown to represent the majority of its business. In recent years, Manitowoc has placed a strong emphasis on becoming a global company. After deriving less than 5% of its sales in international markets in 1999, foreign sales accounted for slightly more than half of Manitowoc's revenue base in 2007. The growth over that period was derived through both internal gains and acquisitions.
In 2007 the Crane unit accounted for 81% of company sales and 84% of operating profits. This segment makes tower cranes, mobile telescopic cranes, and high-capacity lattice-boom crawler cranes serving applications such as energy, petrochemical, and industrial projects; infrastructure development; commercial and high-rise residential construction; and mining and dredging.
Manitowoc's other two divisions, Foodservice and Marine, bring in a much smaller proportion of its business. In Foodservice, Manitowoc makes ice-cube machines, ice/beverage dispensers, and commercial refrigeration equipment. The Marine division provides shipbuilding, ship repair, and conversion services for government, military, and commercial customers throughout the U.S. maritime industry.
Market Profile
Global Insight, which provides economic, financial, and political data and forecasts, projects what we view as a particularly solid 9.2% compound annual growth rate in global construction spending for the period of 2006 to 2016. Its forecast calls for global construction spending, which we believe is the primary factor driving demand for Manitowoc's crane products, to reach $13 trillion in 2016.
In viewing nearer-term prospects for the crane industry, the Association of Equipment Manufacturers, an international trade group, expects construction equipment sales to grow 2.8% in the U.S. and 8% globally in 2008. It also forecasts that sales of lifting equipment in the next year will grow 5.2% in the U.S. and 11.9% globally.
Industry sources believe that construction spending in 2008 will be concentrated in 10 nations: Brazil, Britain, China, France, Germany, India, Japan, Spain, the U.S., and Venezuela. Most important, in our view, Manitowoc has at least one crane product line with a market share greater than 25% in all of these countries except Japan.
Growth Strategies
For several years, infrastructure improvements such as new roads and bridges, as well as high-rise commercial construction and energy projects, have created strong demand for Manitowoc products in North America and Western Europe. So the company has undertaken expansion of its three North American plants. It has also expanded and/or opened crane facilities in Italy and Portugal.
Another major source of growth lately—and in future years, in our view—has been sales to new and emerging markets. Crane sales to these markets are expected to exceed $1 billion in 2008, with strong growth likely to continue for some time to come.