Bucyrus International Inc.

Bucyrus (BUCY - Snapshot Report) has seen its stock pummeled in the commodities sell-off and market rout. Shares tumbled from a high on June 17 of $79.50 to $28.77 on Oct 6. The markets are acting as if all worldwide mining will grind to a halt.

But Bucyrus' fundamentals are solid and the stock is an attractive value pick at this level. It has surprised on estimates 4 consecutive quarters by an average of 25.83%. With the stock selling off, it now trades with a forward P/E of only 8.60.

Company Description

Bucyrus International, Inc. is a South Milwaukee manufacturer of high productivity mining equipment for the surface and underground mining industries.

The company has two divisions: surface mining and underground mining. Surface mining equipment is used for mining coal, copper, iron ore, and in the oil sands. Underground mining equipment is used for coal mining and mining minerals such as potash and trona. The company also provides aftermarket services for its machines.

On Sep 30, the company entered into a supply and distribution agreement for Brazil with Hensley Industries, Inc. Bucyrus will install Hensley's line of hammerless ground engaging tools on its electric rope shovels and walking draglines sold in Brazil and also provide aftermarket support for Hensley's products.

The company said the agreement could be expanded to other countries in the future.

Bucyrus Beat Wall Street Estimates by 25.76% in the Second Quarter

On July 24, Bucyrus reported second quarter earnings and easily surprised on estimates by 25.76%, or 17 cents per share. Net earnings were $62.3 million, or 84 cents per share compared to $27.8 million, or 40 cents, in the second quarter of 2007. Adjusted EPS was 83 cents. Analysts expected 66 cents.

Comparisons to the year ago period were impacted by the May 4, 2007 acquisition of DBT GmbH which increased the company's profit. In 2007, Bucyrus only had one operating segment, surface mining. In the second quarter 2008, due to the acquisition, the company had both surface and underground mining segments.

Gross profit was $174.1 million, or 28.0% of sales, compared to $96.3 million, or 25.7% of sales, in the year ago period. The increase was attributed to the acquisition of DBT and an increase in surface mining sales.

Surface mining continued to be hot as new orders for original equipment rose 22.9% over a year ago. Aftermarket parts and services soared 135.9% as all worldwide markets remained strong.

The company said the high demand was driven by high commodity prices and strong markets for commodities mined by Bucyrus' machines. Bucyrus saw a big increase in sales of electric mining shovels and draglines.

Consensus Estimates Rise for the Full Year

Despite the downturn in commodities prices and an apparent weakening in commodities demand, consensus estimates for the third quarter have held at 86 cents per share over the last 30 days. For the full year, estimates are up 5 cents to $3.21.

The question is, what is happening to orders with the credit crunch and the fall in commodities prices? We'll get a clearer picture when the company reports its third quarter earnings on Oct 23.

Value Fundamentals

Bucyrus is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 8.6. Its price-to-book is 2.85. The company has a solid five year average return on equity (ROE) of 12.53%. The company pays a dividend with a current yield of 0.30%.