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Joy Global Remains Neutral

CAT JOY

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We have maintained our Neutral recommendation on Joy Global Inc. (JOY - Analyst Report) primarily owing to possibilities of lower demand for mining equipments due to switching to natural gas from coal as raw material for electricity generation in the U.S. Besides, slow progress in prevailing European debt crisis, to some extent, may influence the company’s upcoming performance.

As far as Joy Global’s key growth indicators are concerned, the company’s prospective long-term fundamentals of the mining industry will aid in its future growth. In addition, we expect demand for mining equipments to increase in the near term due to projected growth in power production in Asia.

In the third quarter of fiscal 2012, Joy Global’s results lagged the Zacks Consensus Estimates, but surpassed the year-ago numbers. Improvement in year-over-year performance was driven by higher contribution from the Underground Mining Machinery and Surface Mining Equipment segments; partially offset by increase in cost of sales, and selling and administrative expenses.

As far as negative factors are concerned, Joy Global primarily depends on third-party vendors to fulfill its raw material requirements. If any of the vendors fail to supply raw materials on time, the company will not be able to provide equipments or services to its customers within the stipulated time. This will negatively impact the company’s financial results.

Joy Global believes that there will be a rise in the long-term industrial demand in the U.S., China and India, triggering greater requirement for mining equipments going forward for both after-market and original equipments. To capitalize on this strong international opportunity, the company recently completed few significant acquisitions including China-based underground longwall coal mining equipments provider International Mining Machinery Holdings Limited (“IMM”) and LeTourneau Technologies Inc.

We presently prefer Joy Global’s peer Illinois-based Caterpillar Inc. (CAT - Analyst Report) having a short-term Zacks #3 Rank (Hold rating), as the former currently has short-term Zacks #4 Rank (Sell rating).

Milwaukee, Wisconsin-based Joy Global Inc. caters to its global consumers and provides manufacturing, distributing and servicing equipments for surface and underground mining. With a market capitalization of $6.05 billion, the company has 14,500 full-time employees.

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