Manitex Showing Some Operational Improvement, But Slowing Orders Are A Sentiment Risk

Writing about Manitex (NASDAQ:MNTX) earlier this year, I thought that the company would see evidence of stronger demand in 2022, but that real leverage on that demand would likely have to wait due to cost inflation and component availability. I thought that lack of leverage could be a challenge for the stock, and the shares have been weak - falling close to 40% and underperforming other construction-leveraged names like Oshkosh (OSK) and Terex (TEX).

Looking into 2023, I'm bullish on demand from end-markets like infrastructure construction (roads, etc.) and oil/gas, but I'm less bullish on the non-residential and residential construction markets that make up close to half of Manitex's end-market, and likewise, I'm not as bullish on the metals sector. On top of that, while I understand the reasoning of the company's acquisition of an equipment rental business, investors don't tend to like that kind of diversification.

Valuation doesn't look especially demanding, but I see a risk that margin improvements and healthy deliveries in 2023 will be overshadowed by a weaker macro backdrop.

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Manitex Showing Some Operational Improvement, But Slowing Orders Are A Sentiment Risk

Manitex Likely To See Some Short-Term Pain, But Long-Term Gains Still In Play

 

All things considered, Manitex’s (MNTX) performance over the past year has been pretty good. This small heavy machinery manufacturer certainly hasn’t been immune to the wider supply chain challenges hitting the sector, but these shares are basically flat since my last article, outperforming a host of heavy machinery comps like Caterpillar (CAT), CNH Industrial (CNHI), Deere (DE), Manitowoc (MTW), Oshkosh (OSK), and Terex (TEX), though underperforming the S&P 500 and Russell 3000.

The weakness across the sector is interesting, with equipment inventories (new and used) running low and likely demand acceleration in the coming years on renewed construction activity and the longer-term benefits of the infrastructure bill. Manitex still has a lot to prove, but management seems to have the company on a better path where strategy and operational execution are concerned, and I think this is still a name worth watching.

 

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Manitex Likely To See Some Short-Term Pain, But Long-Term Gains Still In Play

Manitex Past The Worst And Now Leveraged To Equipment Recovery

Heavy equipment stocks have been doing pretty well since the election, and Manitex (MNTX) has gone along for the ride. Up about 75% since my last article, Manitex’s performance slots in pretty well between a handful of better-performing names like CNH (CNHI) and Deere (DE) and worse-performing names like Caterpillar (CAT), Oshkosh (OSK), and Palfinger (OTCPK:PLFRY), while more or less matching Manitou.

I do expect a healthy recovery in 2021 despite a lackluster non-resi construction environment, as fleet operators (including rental companies) emerge from their own capex lockdowns to refresh their fleets. Beyond that, a meaningful infrastructure bill could provide a bigger boost to demand later in 2021 and into 2022, and Manitex still has the company-specific driver of leveraging its knuckle-boom crane business (PM Group) and driving more sales of this under-penetrated (in the U.S.) equipment category.

After the big move in the shares, I would say the stock is more fairly-valued now than definitively cheap, and outsized upside is now tied more to an even stronger/longer recovery cycle and better success driving growth in knuckle-boom cranes – both of which are plausible.

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Manitex Past The Worst And Now Leveraged To Equipment Recovery

Covid-19 Complicates An Already-Challenging Manitex Turnaround Story

There have been some positive developments at Manitex (MNTX) that you don’t really see in the share price, including new management, expanded distribution, and signs of momentum in the knuckle-boom crane business. On the other hand, the results are what they are, and the Covid-19 outbreak is going to have a sharp near-term impact on the business.

Manitex remains a story about internal transformation driving better long-term results, and particularly whether drivers like the knuckle-boom cranes and Tadano partnerships can drive meaningful improvement over what has been a pretty dismal track record of margins and free cash flow generation. While the shares do look undervalued on what I think are achievable long-term estimates, there are a lot of cheap stocks out there today and I won’t argue forcefully that Manitex has earned the benefit of any doubts.

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Covid-19 Complicates An Already-Challenging Manitex Turnaround Story

Manitex - New Management And A New Year, But Old Problems

Management matters, and that’s been proven over and over again in the market. Manitex (MNTX) has a new CEO now, one with directly relevant industry experience and success, and the company still has growth opportunities with its articulated/knuckle-boom crane business that is kinda-sorta new to the U.S. market. But the company also has very familiar old problems including cyclical end-markets, weak margins, and not much evidence of real value-creating momentum in the business.

Do I think Manitex can be run better than it has been? Absolutely. Do I think there’s a credible market opportunity for the company’s straight mast and articulated cranes that can support meaningfully higher revenue, margins, cash flows, and share prices? Yes. Do I think it’s worth the risk to own the shares and find out? That’s a harder call.

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Manitex - New Management And A New Year, But Old Problems

A Second Quarter Shortfall And Weakening Markets Aren't What Manitex Shares Needed

I was reluctant to give Manitex (NASDAQ:MNTX) full credit for its performance in the first quarter, and key end-markets have apparently slowed further. That, in turn, has led to a disappointing second quarter and a weak share price as the outlook for the second half is quite a bit cloudier now. Although Manitex does have credible attractive opportunities like its growing knuckle-boom crane business, I don't see the construction end-markets getting stronger from here, and I think margin leverage is going to be harder to achieve.

Compared to markets like Class 8 heavy trucks, I don't think Manitex is likely looking at an impending sharp cyclical correction, but I also don't think the company's end-markets are getting stronger. That sets up a difficult valuation/stock call, as the long-term discounted free cash flow opportunity still looks relatively attractive, but the Street tends to value machinery companies like Manitex, Manitowoc (MTW), and Terex (TEX) more on the basis of near-term margin and revenue expectations, and those don't work as much in the company's favor now.

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A Second Quarter Shortfall And Weakening Markets Aren't What Manitex Shares Needed

Manitex Does Well On Margins, But Orders Bear Watching

In a generally still-healthy construction market, Manitex (MNTX) seems to be doing okay. The first quarter was maybe not quite as robust as some investors may wish to see on the revenue and order lines, but the margin progress was encouraging, and the overall environment for construction-related machinery still seems fairly healthy in North America. A key challenge, and opportunity, for Manitex management remains in the acceleration of the PM knuckle boom crane business, a machinery category that is relatively under-utilized in North America relative to Europe.

Manitex’s better-than-expected gross margin was nice to see, but orders were softer than I’d like. Still, even on the assumption of long-term FCF margins averaging out in the mid-single-digits, the shares look undervalued today.

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Manitex Does Well On Margins, But Orders Bear Watching

With More Macro Uncertainty, Manitex's Ability To Execute Is Key To A Good 2019

Almost a quarter of the way into 2019, there’s still much more clarity about the health of the construction sector – a key component not only of the U.S. economy in general, but also a key driver of roughly half of revenue at Manitex (MNTX). While slower growth (but still growth) seems likely relative to 2018, a lot is riding on improved results in the second half of the year and sentiment is still fragile.

Specific to Manitex, end-market demand in key markets like construction, infrastructure, energy, and utilities should be good enough to drive another year of solid revenue growth, but management’s ability to execute on margins and continue to drive growth in the PM knuckle-boom business is crucial for the stock. The shares do still look undervalued, but investors should remember that this is a low-margin business serving cyclical end-markets and a riskier-than-average stock.

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With More Macro Uncertainty, Manitex's Ability To Execute Is Key To A Good 2019

Manitex's Orders Need To Be Watched, But Progress Is Evident

Manitex (MNTX) shares have inarguably been weak since my last update on this manufacturer of mobile cranes, as the shares are down about 30% and have underperformed a generally weak sector (Terex (TEX), Manitowoc (MTW), and Palfinger (OTCPK:PLFRY) are all down about 15% to 25% over the last three months). Some of that has to be the broader weakness in the market as well as growing concerns about the heavy equipment cycle, and I didn't think that Manitex was particularly cheap when I last wrote about it.

Still, I think Manitex has made a lot of progress, and although I can't dismiss the risk that the cycle is ready to roll over, I believe Manitex's margin structure and balance sheet are in much better shape now. What's more, while a roll-over in heavy equipment demand would be inarguably bad, I still like the long-term growth story of Manitex gaining share with its knuckle-boom offerings in North America in the coming years and leveraging its still-new partnership with Tadano.

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Manitex's Orders Need To Be Watched, But Progress Is Evident

Manitex Continues To Benefit From Market Recovery And Self-Improvement

Healthy construction markets, complemented with recovering oil/gas and some strength in utilities, are putting some wind back into Manitex’s (MNTX) sails, and the company is complementing this end-market recovery with improved cost efficiency performance. While orders slowed in the second quarter, that’s normal on a seasonal basis and I don’t think much is changing in terms of end-market opportunities for the company (in other words, I don’t believe the second quarter order flow indicates that the window is closing).

Manitex shares don’t look particularly undervalued to me right now, even with a double-digit decline from its 52-week high. I believe there are still legitimate opportunities to grow the PM knuckle-boom crane business in the U.S. over the coming years and I think the Tadano relationship offers some upside in terms of product development, joint sourcing, and expanded market access in Asia, but that’s a multiyear opportunity that won’t even really start until next year. Even so, the share price seems to reflect a fair bit of that now.

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Manitex Continues To Benefit From Market Recovery And Self-Improvement

Manitex Adds A Strategic Partner

When writing about Manitex (MNTX), a small American manufacturer of boom truck cranes, knuckle-boom cranes, and other lifting equipment, I’ve often mentioned Tadano (6395.T) (OTC:TDNOF) as a peer/comparable, although Tadano and Manitex have relatively little direct overlap (some in rough terrain cranes and truck-mounted cranes). Now, these two companies will be even more closely tied together, as they announced a tie-up on Friday, May 25, that will see Tadano take a nearly 15% equity stake in the company.

Although the terms of the deal suggest to me that it’s slightly dilutive in the near term, Tadano’s investment should allow Manitex to retire a meaningful portion of its debt (perhaps around a third), reducing its operating risk and saving some interest expense, as well as help the company operationally. It could also, perhaps, be prelude to an eventual acquisition by Tadano. Although Manitex shares are no longer exceptionally cheap, there is still some upside here, particularly if Manitex can make faster progress growing its PM Group knuckle-boom crane business.

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Manitex Adds A Strategic Partner

There's More Upside To Manitex As The North American Crane Market Recovers

The market for cranes in North America seems to be coming back nicely after a difficult trough cycle brought on by the sudden downturn in the energy sector, but Manitex (MNTX) have flattened out some - while the stock is up a healthy 50%-plus over the past year, it's basically flat since the time of my last write-up on the company. In that time, Manitex reported restated financials and continued to see good demand and order growth in its core crane operations.

Manitex shares still look somewhat undervalued on discounted cash flow and potentially more exciting on EV/EBITDA, particularly as EBITDA should ramp up significantly over the next couple of years. Investors shouldn't lose sight of the risks, including an earlier peak to crane demand and rising input costs, but Manitex is an interesting under-followed machinery recovery story.

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There's More Upside To Manitex As The North American Crane Market Recovers

Glimpses Of Progress At Manitex

Small-cap crane manufacturer Manitex (MNTX) has become a much harder company to follow recently. Not only is this company barely followed by the Street, the company’s need to restate earnings for 2016 and 2017 means there’s not much reliable information to go on in terms of recent historical numbers.

The good news is that what information management has provided is broadly positive. Revenue is rebounding, the backlog is growing, and margins seem to be more or less where I thought they’d be. Predicting how far this recovery can take the energy and construction businesses is difficult, and the company is also doing a pretty good job of building out its PM Group business in the U.S. All told, I think today’s stock price is pretty fair and offers double-digit expected returns for a business that still has elevated operating risk.

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Glimpses Of Progress At Manitex

Manitex Still On Its Bumpy Road To Recovery

Maybe comparisons to Icarus are a little unfair to Manitex (NASDAQ:MNTX) management, but the company has definitely paid a price for its former reliance on the oil/gas sector and using debt to fund a significant M&A expansion program during the U.S. onshore energy boom. Now, though, the company is largely through a stark restructuring effort that has seen management refocus around its core boom truck and knuckle-boom crane product lines.

The shares are about 10% since my last update, boosted by a strong positive reaction to second quarter earnings, but the shares have been pretty volatile in the meantime, with the stock price heading up above $9 earlier this year on optimism around restructuring and market recoveries. While Manitex's core markets remain skittish and volatile, it looks as though older used equipment has been largely absorbed, and the table is set for a return to growth. I don't expect a V-shaped recovery (even if a comprehensive federal infrastructure bill is passed and signed), but I do think Manitex can grow at a long-term rate in the mid-single digits and the shares can still perform as the recovery story unfolds and matures.

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Manitex Still On Its Bumpy Road To Recovery

Manitex Waiting For The Tide To Change

Credit where due, Manitex (NASDAQ:MNTX) management is doing what it can to shore up the business during a tough cyclical downturn in its core businesses. In addition to cutting costs, management has been selling non-core businesses in an attempt to reduce the company's leverage and give it a little more breathing room while awaiting a turnaround in its key energy market and the benefit of efforts to grow the ASV and PM businesses.

Unlike so many other industrial names, Manitex didn't really see a post-election bounce (the bounce Manitex saw last week was due to more encouraging guidance for its crane business). Manitex isn't as leveraged to potential infrastructure spending increases as Terex (NYSE:TEX) or Manitowoc (NYSE:MTW), but it can still be argued that the shares don't reflect the possibility of a turnaround here.

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Manitex Waiting For The Tide To Change

Seeking Alpha: Manitex Prioritizing The Right Things During The Downturn

I think it is fair to say that Manitex (NASDAQ:MNTX) was too ambitious and too aggressive when breakneck North American onshore energy expansion fueled an unsustainable demand for cranes. Management significant stretched the balance sheet in the interests of empire-building, expanding into non-core areas like trailers and liquid storage tanks. When the cycle turned, Manitex found itself with a lot of debt, not a lot demand, and questionable synergies between the units.

All of that can certainly explain why the stock has been hammered worse than other lifting equipment companies like Terex (NYSE:TEX), Manitowoc (NYSE:MTW), Manitou, and Palfinger since 2014, but it doesn't necessarily make the shares untouchable now for aggressive investors. Management has pivoted from a growth-by-acquisition model to more of a value-creation model, with a stronger focus now on cost control/reduction, cash flow generation, and sustainable growth in high-potential businesses like knuckle cranes and the ASV product line.

I'm not as bullish on a meaningful rebound in the North American energy market as I once was, but I don't think it will much worse and I think construction (residential, commercial, and civil) can be a driver for this business. I don't see Manitex struggling to pay its interest, and I do believe further debt reduction efforts can unlock some value. My current estimates call for long-term revenue growth in the mid single-digits and peak FCF margins in the mid-to-high single-digits, supporting a fair value of $7.50 that could go higher if/when energy really recovers and/or management shows that it can build its knuckle crane and ASV operations into disruptive players.

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Manitex Prioritizing The Right Things During The Downturn

Seeking Alpha: Manitex Struggling As The Boom Cycle Goes Bust

It's cold comfort when one of the nicest things you can say about a long call is that the company's peers have gotten hammered about the same in the intervening time. Manitex (NASDAQ:MNTX) borrowed extensively to fund an M&A program that has taken the company from around $100 million a year in revenue in 2010 to almost $100 million a quarter now, but the severe downturn in the energy market has hammered this company and pushed operating margins back into the low single digits. Although I think Manitex could still pay its interest even with a 10% sales decline next year and negative gross margin leverage, the situation is far from ideal today.

This is not just a Manitex-specific problem. Manitowoc (NYSE:MTW) is down about as much since the last time I wrote about Manitex, and Terex (NYSE:TEX) has done worse. Europe's Manitou (OTC:MAOIF), which is largely screened from the energy-related downturn in the U.S., hasn't done much better either.

At the risk of not knowing when to quit, I think Manitex still has a worthwhile future. The company's acquisition of PM Group gives the company better exposure to what should be an improving European construction sector in 2016, not to mention exposure to growth in North America (where PM Group has been historically under-represented). I think it's early (or at least very aggressive) to expect an energy recovery, but PM Group and ASV do at least give Manitex more leveraging to a healthier construction sector in North America.

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Manitex Struggling As The Boom Cycle Goes Bust

Seeking Alpha: Manitex Has Expanded Into The Downturn, But Can It Deliver?

What Manitex (NASDAQ:MNTX) has done is bold - in ten year's time the company will either be a well-diversified material handling company that is a thorn in the side of companies like Terex (NYSE:TEX) and Manitowoc (NYSE:MTW) or it will be a lesson on the risks of overly ambitious growth plans and aggressive use of leverage.

I've placed my own bet on the former outcome, and I do believe Manitex can drive double-digit revenue growth and build toward double-digit operating margins. Growth should come from share gains in larger cranes, exposure to a construction recovery, and a host of share-growth opportunities in areas like container handling and industrial cranes. It is likely going to take at least a few quarters for underlying demand to improve and there are risks that the costs of operating this expanded global enterprise will run higher than expected, but I continue to believe that Manitex can support a low-to-mid double-digit fair value.

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Manitex Has Expanded Into The Downturn, But Can It Deliver?

Seeking Alpha: Manitex Still Hopes To Grow Past The Crane Wreck

It's been a rough year for Manitex (NASDAQ:MNTX), as the hoped-for turnaround in crane demand failed to materialize. For what little it may comfort investors, Manitex hasn't fared much worse from a stock market perspective as Terex (NYSE:TEX), Manitowoc (NYSE:MTW), and Palfinger (OTCPK:PLFRY) have all been weak as well.

There are certainly still clouds on the horizon, as rental fleets likely do not need to refresh aging fleets on a one-to-one basis and housing/infrastructure spending hasn't caught fire. Even more concerning to Manitex, oil and gas spending is likely to drop meaningfully next year as energy companies respond to a sudden drop in oil prices that has pushed many drilling projects below breakeven.

Amidst the challenges, Manitex has continued to build its business toward a critical mass in specialty equipment and 2015 could see the company break out over $500 million in revenue. Pushing out my expectations for organic growth and margin improvement has dropped my fair value in the low-to-mid teens and the debt magnifies the risk, but Manitex is still targeting growth in recovering sectors like infrastructure and industrial capex.

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Manitex Still Hopes To Grow Past The Crane Wreck

Seeking Alpha: Is Now The Time For Essex Rental?

The past year has been a pretty good one for the shares of at least some companies leveraged to commercial construction activity. The crane companies (Terex (NYSE:TEX), Manitowoc (NYSE:MTW), and Manitex (NASDAQ:MNTX)) had a rough time in the wake of second quarter results, they're up 27% to 42% over the past year. United Rentals (NYSE:URI) and Hertz (NYSE:HTZ), both of which rent various types of equipment to the construction industry, have also joined in, climbing over 100% and almost 20%, respectively.

Then there is Essex Rental (NASDAQ:ESSX). One of the largest owners and renters of crawler cranes in the United States, these shares are down almost 40% as the company continues to languish with weak utilization of traditional crawlers and uninspiring revenue and EBITDA performance. It seems to be getting better, though, as the company is implementing a new customer-centric strategy, expanding some of its offerings, and seeing improving utilization and order inquiries. Add in pretty positive recent trends in non-residential construction indexes and maybe this marks a potential turnaround point.

Before going further into the details, it is important to note that Essex is tiny (a sub-$100 million market cap) and not very liquid (an average volume of less than 50K shares/day). That increases the risk and makes it less likely that Essex Rental will gain the attention and support of sell-side analysts.

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Is Now The Time For Essex Rental?