Joy Global (JOY) had an excellent fourth quarter and a strong bullish trend going. What does it look like will happen to the company in 2013? Will it be a good investment? Should investors consider buying stock in this company?
Joy was a pleasant highlight this fourth quarter with a very nice 23% rise in net income. The company beat analyst expectations by quite a bit:
- Quarterly earnings surged to $212.6 million, or $1.99 per share, from $172.3 million, or $1.62 per share, in the year-earlier period.
- Revenue rose 19% to $1.59 billion. However, analysts were expecting a profit of $1.87 per share on revenue of $1.42 billion.
- Joy Global expects FY13 earnings of $5.90 to $6.50 per share on revenue of $4.9 billion to $5.2 billion. However, analysts were expecting earnings of $6.66 per share on revenue of $5.18 billion.
Barclays maintains an "Overweight" on Joy Global price target of $88.00 but I am not so sure I would give it this recommendation at this point.
China Continues to Affect Joy Global
China used to boast double digit growth that fueled its infrastructure expansion. Heavy equipment pulls resources like coal and metals out of the ground and Joy Global entered the market like its competitor Caterpillar (CAT) to take advantage of this growth. Recently growth for China has dropped to its lowest level in 10 years which leaves all the machines manufactured or brought over unsold. It has been estimated that companies like Joy Global may have twice the capacity they need. Inventory is way more than what is needed - Caterpillar began to export some of its equipment from China to the Middle East and Africa for sale. The demand for growth in China is expected to move an anemic (for China) pace of 5% for the next couple years. Mining companies that would be perfect clientele for Joy like Rio Tinto (RIO) have also scaled back operations.
There was a time when China loomed big in Joy Global's expansion plans.
It was back in 2011 when the company had plans for expansion. It already had 3 factories going in China, management was seeking approval from the board of directors to build a service facility in India and another factory in China that would produce underground mining equipment. Since new projects are being put on hold and growth is slowing down, 2013 will see its capital expenses falling 10% to 15% from 2012 levels. That will make the company's equipment - including drag-lines, power shovels and front-end loaders - a tougher sell. For this reason, 2013 guidance is going to be lower than 2012. Its forecasted ($5.30 to $6.50), off by about 13% from 2012 and revenue off by 11%.
Investing Long Term in Joy Global
Joy's believes the export of US coal will offset the continued decline of the use of coal here. With a good fourth quarter, I believe the company will be able to weather any temporary slowdown. Long term, China should be a good investment for JOY. In fact, global sales should be good. Natural gas is growing in the US, replacing coal but coal production globally is growing. Did you know that 55% of the power in India alone is generated from coal? Globally, coal is the cheapest from of energy production because natural gas trades for much higher prices than it does in the US. China has that $157 billion stimulus that is focused on infrastructure. Sales should be good for Joy Global as the economy inches along and slowly expands.
But I do not believe it is something that will happen quickly. While the company is expecting a weaker 2013 than 2012, I am not sure if I would rely on the stock as a growth investment in 2013. I do not believe its dividend level is inviting either. Although I like this company, I would suggest further research into the company before investing because there might be better investments elsewhere.
(click to enlarge)
Technically Speaking
The stock has been in a fairly predictable peak and valley bullish trend since mid summer. It recently broke through the lower resistance levels but is fighting its way back up and the RSI indicator has never looked stronger. Presently it just touched a key resistance area and it will be interesting to see if it can push through. The Bollinger bands are basically the highs and lows, and are not revealing anything special to us. The MACD, like the RSI, is also bullish after the recent dip. Seeing push through this resistance will be important.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
