On Dec 27, we maintained our Neutral recommendation on the mining equipment maker Joy Global, Inc. (JOY).
Why the Reiteration?
Fiscal 2013 has been another difficult year for Joy Global. Depleting backlogs and declining orders from some of the key markets pulled back results. Even though the company surpassed our sales expectation, the decline in yearly bookings and total backlog is our major concern. Total bookings at Joy Global during fiscal year 2013 were $3.9 billion, down 23% from $5.07 billion at the end of the prior fiscal.
To overcome the slackness in demand and the present supply surplus, the company tried to restructure its operations, move its production capability to high-growth areas and lower operating expenses. Joy Global will continue with these cost-saving initiatives in the current fiscal in a drive to boost margins.
Consolidation in the mining industry has changed the equipment preference of Joy Global’s customers. It also means that the company will receive orders from fewer customers. In addition, the mining industry is competitive, inducing Joy Global to manufacture products catering to customer demand to fend off competitors.
The revenue generation of the company is to a large extent tied to coal market demand. Nearly 62% of the total revenue of the company is generated from coal-mining customers. Stringent government regulation and growing awareness regarding the pitfalls of excessive coal usage are gradually lowering the demand for thermal coal in the U.S. The decline in coal demand and consequently in mining machineries can impact the sales volume of the company.
Other Stocks to Consider
Joy Global currently has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the sector include H&E Equipment Services Inc. (HEES), Terex Corp. (TEX) and Alamo Group, Inc. (ALG). All these companies carry a Zacks Rank #2 (Buy).