Joy Global Downgraded to Neutral

We have downgraded our rating on mining equipment manufacturer and service provider Joy Global Inc. (JOYG) from Outperform to Neutral.

Joy Global's exposure to the wide international market accounted for more than 50% of its total revenues in the three preceding financial years. However, the wide overseas footprint exposes the company to various political, economic, and other uncertainties. We believe any significant dip in international sales will adversely impact the top line of the company.

The company, to a large extent, depends on third-party vendors for raw materials required to build its equipment and as Joy Global operates with very little inventory (just-in-time practices), this leaves the company susceptible to supply bottlenecks such as capacity, labor issues and other non-controllable events.

The positive catalysts for the company are its solid backlog and continued cost management initiatives, which position Joy Global to stay ahead of the curve. The company is also positioned well to take advantage of improving order trends from the US, China and India.

The mining industry is however undergoing consolidation, which limits the number of consumers for the company. This will have an adverse impact on top-line generation. At the end, despite the few positives favoring the company, in the balance, the risks loom large. Hence, we downgrade the stock to Neutral.

Looking Ahead

Joy Global expects earnings per share for 2011 to be in the range of $5.70 to $6.00. The Zacks Consensus expectation for the year is $5.86 per share.

Joy Global currently retains a Zacks #3 Rank, which translates into a short-term Strong Hold rating. Joy Global competes with another industry behemoth Caterpillar Inc. (CAT - Analyst Report).

Joy Global Inc. is based in Milwaukee, Wisconsin and caters to consumers all around the world. The company provides manufacturing, distributing and servicing equipment for surface mining, through its P&H Mining Equipment division, underground mining, through its Joy Mining Machinery division and bulk material conveyor systems, through its Continental Crushing & Conveying division.

Read the full analyst report on JOYG

Read the full analyst report on CAT