Investors are Valuing Manitowoc (MTW) Crane Business All Wrong, Jefferies Says

Manitowoc (NYSE: MTW) is solidly higher Friday (+2.9%) after Jefferies analyst Stephen Volkmann boosted his price target to $21 from $17, suggesting 39% upside from yesterday's close.

In January, the company announced plans to split its Cranes and Foodservice businesses into two independent, publicly-traded companies. The analyst said investors should really take another look at Manitowoc, saying the company is getting zero credit for its weak Cranes business.

"While the crane business is weak, foodservice is improving, and we believe a significant valuation anomaly is occurring," Volkmann commented. "MTW will split food from crane in mid 1Q16, and the market at this point is basically valuing the crane business near zero, which we find absurd given the strong global franchise, leading brands and significant installed base supported by a broad and deep distribution capability."

The analyst said they believe the problem stems from investors using an EV/EBITDA methodology to value a deeply cyclical business nearing its cyclical bottom, which he said makes little sense historically. He said that in industrials this metric generally becomes fairly meaningless as EBITDA approaches zero.

EV/Sales makes much more sense at cyclical extremes, the analyst said. MTW’s depressed crane business should generate at least $1.5bln in revenue in 2016, according to the analyst.

"Valued at just 40% of sales – the cheapest valuation in the industrial space, MTW total value would be over $20/share – 30+% potential upside from current levels," the analyst said.

The firm maintained a Buy rating on the stock.

For an analyst ratings summary and ratings history on Manitowoc click here. For more ratings news on Manitowoc click here.

Shares of Manitowoc closed at $15.15 yesterday.

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