Summary
Our MTW thesis based on its exposure to a recovery in construction and break-up value (see 10/28/13 “MTW: Next Activist Value Target?”) has played out well. Given current market prices, the shares have entered our fair value range in a softer equity market and potentially less attractive macro environment. We also would prefer to own OC (and potentially other building products names) at current levels for construction exposure, rather than MTW at ~$27.60. We are not signaling an MTW problem/short/sell, but rather responding to our repricing thesis working out in a market offering some better construction-exposed opportunities. If MTW shares retreat, we would look to re-enter, with our thesis put forth in our March 2013 Mining & Construction Equipment black book.
Quick Take
- Solid Beat: MTW readily exceeded expectations for the quarter, principally on 10% revenue growth in Foodservice Equipment amid solid margin gains.
- Both Segments Grow: Excluding $120 million shift in 2012 Crane revenues between quarters, the Crane segment showed 4Q growth of 9.3% - consistent with other strong construction equipment sales readings.
- Less Under Recognized: MTW is better recognized today, with several of our catalysts having occured (e.g. the redemption of a high cost/problematic covenant tranche of debt has now been announced.)
- Better Options: We see OC as a better exposure for 2014 from current levels to a construction rebound following MTW’s ~35% total return since late October (vs. a roughly flat S&P 500).
