Not all infrastructure plays are created equal. What has been a fabulous trend to ride since the lows of November has left a few players behind. One of those is Manitowoc Company (NYSE: MTW).
Granted MTW has improved off it lows, but it has not shared the same momentum heading into 2009 as others. Shares MTW sold off to the tune of 12% Thursday and lost another 3% on Friday.
The company stated that profit will likely come in at the low end of its previously announced guidance range of $3.15 to $3.25 per share. Given that there's only a 3% difference between earning $3.15 per share and $3.25 per share, what accounts for the other 9% of today's sell-off?
The company manufactures and sells cranes: lattice-boom crawler cranes, mobile telescopic cranes, tower cranes and boom trucks for use in energy, petrochemical, industrial projects and infrastructure development such as the building of roads, bridges, commercial and residential construction, and mining and dredging.
These are just the things that will do well once the new administration passes its massive infrastructure spending bill. For whatever reason, the stock cannot ride the coattails of this expected boom to its business. MTW now forecasts earnings for '09 of just $1.35 to $1.60 per share. Analysts, on average, were expecting earnings of $2.63 per share, so I take the sell-off not as an indictment of 2008 earnings, but of 2009 earnings.
These downside revisions are troubling to be sure, but do they set the table for future earnings gains?
Manitowoc forecast a 20% reduction in 2009 revenue at its crane segment, with a major portion of the decline coming in the first quarter of 2009. That's significant given the crane segment accounted for 80% of total revenue in 2007.
A JPMorgan analyst said in a note to clients that areas of strength that were being driven by later-cycle infrastructure spending have started to show significant weakness in recent weeks. If most of the decline in the crane segment is coming in Q1, it seems like it will be a mild and short downturn.
The company said much of the revenue loss from the crane segment will be made up by a tripling in sales in the food-service segment, thanks to the October 2007 purchase of Enodis Plc. That may be presumptuous, according to the analyst, who said he expects business in the segment to fall short of expectations. If so, the stock will see more pressure, but the downside is limited at these prices.
As world governments attempt to throw money at our economic problems, infrastructure spending is near the top of any list I've seen, and MTW should benefit handsomely. Likewise, the food-service segment could get a bump from any reduction in unemployment and rising demand for fast food in markets such as Asia.
MTW trades for just six times the low end of '09 guidance. I say there's a whole lot more upside than downside at the current price especially if it can start benefiting from the infrastructure play.
Jamie Dlugosch is a contributor to OptionsZone.com.
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