Mining, Coal, Railroads and Joy Global's Earnings

 |  Includes: JOY, KOL
by: George Chadwick

Joy Global (JOYG) engages in the manufacture and servicing of mining equipment for the extraction of coal, copper, iron ore, oil sands, and other minerals worldwide. It was expected to report earnings Wednesday morning (Dec. 15) before the market opened. Market cap is $8.3 billion, book value $1.1 billion, book value per share $10.85, price to book ratio is 7.4X, 16% debt, return on equity is 43 percent. Price momentum has been picking up (see chart below) with price being contained inside the median line channel. There are various news items of interest involving coal, Warren Buffett and Bill Gates.Click to enlarge

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Analysts expect earnings of $1.16 on sales of $927 million. Gross profit margin is 33%, operating margin 19.5% and net margin 12.8 percent. There is speculation that Deere (NYSE:DE) may make a bid for JOYG. DE may not want to be left out of the push toward mining equipment and the global demand for commodities, especially coal. Previously, Caterpillar (NYSE:CAT) bid $8.6 bil for Bucyrus (NASDAQ:BUCY), a 30% premium.

Warren Buffett has been trying to position himself to participate in the coal industry. Berkshire Hathaway (NYSE:BRK.A) made what is possibly its largest acquisition in its purchase of Burlington Northern Santa Fe Railroad (a major coal transporter); its ticker used to be BNI. In November 2010, Buffett made a visit with Bill Gates to one of the largest coal mines in the U.S., Arch Coal's (ACI) Black Thunder Mine in Wyoming.

While there are some plans afoot to convert various aging coal-fired power plants to natural gas, plans are being made to create the first major coal export facility on the west coast to enable coal exports principally to China. This will be located 40 miles north of Portland, OR. Washington and Oregon being a hotbed of environmental activism, it will be interesting to see how this plays out. Coal would be transported from Montana and Wyoming by -- you guessed it -- rail. You may track the coal industry, including JOYG, with the coal ETF, KOL.

Disclosure: Author long JOYG and KOL

Strategy Disclaimer: Holding over earnings is extremely risky without some predetermined strategy. The risk is mitigated if you have an entry point that gives you a 15% profit, or if you buy collars (selling calls to buy puts) which gives you cheap insurance but limits your upside.