Komatsu: Japan's Version Of Caterpillar

| About: Komatsu Ltd. (KMTUY)

By Justin Dove

Caterpillar (NYSE: CAT) sent waves through Wall Street this week by beating estimates by $0.16 a share in its earnings report for the third quarter.

It cited heavy demand in its mining equipment business as a major catalyst in the third quarter – something that also recently propelled Joy Global (Nasdaq: JOYG).

But one company that hasn’t quite received that same level of hype from investors is Japanese heavy machinery maker Komatsu (OTCPK:KMTUY). It’s a company that our Emerging Markets Expert Carl Delfeld would likely call a “pink sheet blue chip.” And while Caterpillar and Joy Global are trading around 15 times earnings, Komatsu is still hovering around 10 with its P/E.

Caterpillar Is Still Superior

Make no mistake; Caterpillar is the most dominant company in the sector. Its market cap, at over $50 billion, is more than double Komatsu and five times as large as Joy Global. Its earnings per share are $6.05 and it pays out a two-percent dividend yield.

Joy Global, which is mainly focused in mineral and oil sands mining equipment, is smaller and less diversified than global rivals Caterpillar and Komatsu. However, its EPS of $5.49 barely misses out on Caterpillar and it yields almost one percent compared to Komatsu, which has no dividend.

Komatsu may appeal to investors looking for a bargain to take advantage of some of the same market forces driving Caterpillar and Joy Global.

Possible Advantages to Exploit

There are two possible advantages that Komatsu can look to exploit going forward:

  • Last year Komatsu was the first heavy machinery company to create a hybrid excavator. The PC200-8 Hybrid is said to lower energy consumption by up to 25 percent.
  • Komatsu’s home in Japan is very close to Australia. This proximity could prove to be an advantage due to the mining boom that’s occurring there.

While Caterpillar offers the safest and strongest investment and Joy Global offers the most direct play on mining equipment, Komatsu should be on investors’ radar. It’s well diversified like Caterpillar and will continue to benefit from the same market forces that are driving such a bullish sentiment on companies like Joy Global and Caterpillar.


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