This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Joy Global Could Suffer From Weak Iron Ore, Coal Markets

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.

Why? The iron ore industry hasn't done well in the past few years on account of high iron ore inventories in China and falling prices in iron ore, which are currently around $90 per dry metric ton.

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."

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
JOY $21.17 1.80%
AAPL $95.03 -2.90%
FB $116.73 7.20%
GOOG $691.02 -2.10%
TSLA $247.54 -1.60%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs