JoyGlobal (JOYG): Do Improving Fundamentals Indicate a Buy?

Growth in the manufacturing sector and a positive third-quarter earnings report helped capital-goods maker Joy Global pop above its 13- and 50-day moving averages today.  The Institute of Supply Management reported the 13th  straight month of expansion in the manufacturing sector – good news for equipment makers.

JOYG beat analyst expectations by a healthy $0.10 for $1.13 EPS and raised its 2010 outlook for fiscal 2010 to between $4.10 and $4.15 from between $3.85 and $4.00.

Earnings for the year-ago quarter came in at $1.21 per share. The $5.8B mining-machinery maker also reported 11 percent lower revenues from a year ago. The company touted its sales in surface mining equipment and aftermarket replacement sales and to non-US markets, although net sales decreased overall.

Mike Sutherlin, President and Chief Executive Officer, said “Operating profitability continues above 20 percent, despite lower volumes, as we benefit from our efforts on cost control and process improvements. The market fundamentals continue to improve as customers announce new mine expansions and increase their capital budgets. As a result of these factors, this quarter positions us well to finish the year strongly and to capitalize on opportunities for 2011.”

In its outlook, JoyGlobal stated that companies are growing into unused capacity and may need to add capacity in the near future. From the report:

“It is now expected that capital spending this year will be up around 30 percent from 2009, and will be up by approximately another 10 percent in 2011.”


Comments: Although the momentum in industrial production is expected to moderate in the second half of 2010, production is still expected to run higher than last year.  It’s worth noting, however, that $15 million in lower taxes for JOYG this quarter contributed about $0.15 to EPS. Without this decrease, the company would have reported earnings below estimates. On the balance sheet, the company also has increased its payables by about 50M over last year and holds almost 60M in higher inventories.

On a brighter note, the company is performing well and claims its active prospect list has expanded 20 percent since the beginning of the year. If you share the company’s optimism that these prospects will translate into higher sales, the market fundamentals will continue to improve, and company expansions are on the calendar, then you may want to take a closer look at JOYG. The technicals show the MACD bottoming out and the stock coming off oversold. The stock hit a high of $65.93 in April and the momentum is to the upside.

Disclosure: No positions