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Joy Global, Inc. Message Board

  • watchthedownside watchthedownside Mar 20, 2012 11:26 AM Flag

    Joy is a classic value trap

    ...earnings potential at normalized commodity levels is $3/share (assumes oil at $100/barrel, natural gas at $6, coal at $31, etc.) is investing incremental capital well below its cost of capital (IMM has generated negative cash "owner" earnings over the past five years (see "") and Rowan's mining ops will at most contribute 7% return on capital)...if Joy is this desperate to invest its cash there must not be many other opportunities out there.

    .....maximum earnings potential for 2013 is $4/share assuming normalized commodity pricing (while we may get a commodity "scare" in the next few months, commodities should at best normalize back down by 2013)...this is true whether or not analysts estimate $8/share and even if company reports $7/share for one more "windfall" year.

    $4/share divided by a moderately leveraged weighted average cost of capital of 11% = $36/share

    Perhaps by 2015 if commodities remain firm (and thus demand for mining equipment remains firm), Joy can get up to $5 to $6 in earnings power and be worth $55/share maximum.

    If you don't believe me on any of this, good luck and keep watching (if I end up being right - and that is no guaranty, it will not be a straight line down and the stock will most likely bounce all over the place, even perhaps back up to $100 area briefly).

    I am truly only posting this to help those that seem understandably confused on the recent share price action. I was short JOY but have covered and have instead shorted other names that are much more overvalued (Joy may only fall back to $55 and stay there for three years, and that is no more exciting than shorting the stock market right now imho).

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