NEW YORK (TheStreet) -- The volatility in shares of Joy Global (JOY - Get Report) , a manufacturer of coal and ores mining equipment, has risen in the past few months due to speculation about a potential takeover by the Swedish company Atlas Copco. Since the news broke back on July 16, Joy Global's stock has zigzagged, but as of Tuesday morning at 10 a.m. it had added 6.4% to its value and reached $63.99. Also, the company's quarterly adjusted diluted earnings per share at 76 cents were 6 cents higher than projections.
Despite takeover speculation and the quarterly earnings beat, the company's outlook remains grim due to weaker coal output in China and a challenging iron ore market.
In 2014, the company still expects its revenue to reach, on average, $3.7 billion -- roughly 26% below 2013 revenue.
U.S. coal prices have rallied in recent months, mainly due to the severe winter and elevated natural gas prices. Nonetheless, coal production didn't pick up. Joy Global projects U.S coal output will rise in the coming quarters, which could increase the demand for its equipment.
But consider the harsh conditions coal producers face and their dire financial situation. They may try to further reduce their costs without purchasing Joy Global's equipment.
In China, the coal market has slowed down and the country still aims to reduce the share of coal in its energy mix. These efforts are likely to also adversely impact the bottom line of coal-related companies such as Joy Global.
On a yearly scale, Joy Global rose by only 9% up to date. The company's forward price-to-earnings ratio is 17.16. Its peers have a lower P/E: Caterpillar (CAT) has a forward P/E of 14.95, and Cummins (CMI) has a ratio of 13.14. These figures suggest Joy Global's current valuation is higher than other heavy machinery companies.
In the meantime, Joy Global closed a purchase of several Mining Technologies International assets for C$51.0 million.
The U.S. coal market may see a short-term recovery. But on a global scale -- especially in China -- coal isn't likely to rally. Moreover, the weakness in iron ore could also drag down Joy Global's revenue in the near term.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates JOY GLOBAL INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate JOY GLOBAL INC (JOY) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."
- You can view the full analysis from the report here: JOY Ratings Report