CapGoodsAlpha's  Instablog

Send Message
BRIAN K. LANGENBERG, CFA is a strategic thinker, team builder and expert in global manufacturing, machinery, logistics and distribution. He is a trusted advisor to CEOs and other executives of public and private companies, institutional investors and high net worth individuals because of his... More
My company:
Langenberg & company
My blog:
  • Mining Equipment Rebound?  0 comments
    May 31, 2014 7:46 PM | about stocks: JOY, CAT, ATLCF, ATLKY, ATLKF, ATLCY

    HEADLINE: Barron's Online article dated May 28th cites bulge bracket analyst saying, "Fundamentals are stabilizing."


    Competitor key points - they cite, among other things, destocking at mines at 75-80% over and CAT excess capacity down to 10-15% and most dealer inventories largely stabilized. They also cite rental utilization as having bottomed, improved bidding for operations and maintenance and replacement rates of <5% implying 20-year fleet age run rate versus 8-15 year normal.

    Why they are wrong - their math sounds "comforting" but…

    1. Destock is winding down but that doesn't mean sell through is improving.

    2. Rental utilization trough - better than nothing, but won't drive new order growth.

    3. O&M is necessary, expected, and a bigger piece of Atlas-Copco, Sandvik, and (we believe) Joy than Caterpillar. CAT pushed more equipment = experiencing tougher environment.

    4. Replacement rate argument - flawed because a) they measure against a glut of new equipment and b) mining companies continue to fire people, curtail projects and seek to conserve money.

    5. U.S. coal - there are some ridiculously cheap coal stocks (not all, some) and thermal coal conditions are "less bad" but met coal pricing is still poor. Companies hemorrhaging money do not boost capex.

    Does it matter? - Forget about a turn before 2016. At best 2015 can look "stable" against awful comparisons and we do see new capital formation, particularly by former Xstrata executives among others, to acquire properties. But any improvement beyond O&M support premature. One can argue value somewhere - the Street has 7 Buys on Joy Global (against 15 Holds and 1 Sell) but we don't see any catalyst.

    TAKE-AWAY: Per our April 24, 2014 Integrated Company Dashboard (NYSE:ICD) on CAT the company has improving fundamentals in construction and power generation but "The Trade Has Been Made."

    LATERALS: Anyone interested in equipment manufacturers should review the charts below.

    Data on the following charts are for:
    Atlas Copco: Mining & Rock
    Caterpillar: Resources
    Joy Global: Total Company

    (click to enlarge)Orders

    (click to enlarge)Revenue

    Research Leadership:

    Brian K. Langenberg, CFA, Principal, Director of Research

    Nathan E. Yates, Research Associate

    Michael Williams, Research Intern/Mining Team

    Special thanks to: Ms. Jiamin (Jamie) Zha, Mr. Mingchao (Carl) Zhang

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Back To CapGoodsAlpha's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


  • $UTX, $GE, $HON - China establishing engine manufacturer eliminates up to 20% of global market. Street will ignore but impact is real.
    Aug 29, 2016
  • $GE, $ELUXB - DOJ suit to block deal. Normally I would chalk this up to leftist administration. Given Alstom hold up perhaps....payback?
    Jul 1, 2015
  • $GE - happy the finance assets are going, but Alstom deal is SERIOUSLY at risk. Market doesn't care yet. But it should. HOLD maintained.
    Jun 12, 2015
More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.