Global Tears Of Joy

| About: Joy Global (JOY)

Summary

A tough commodities market is decreasing sales and pushing JOY out of favor.

Management is navigating the economic storm well and positioning the company for profitability.

Patient and intuitive investors will see the current price as an opportunity to buy at a bargain.

Two weeks ago I wrote that buying Joy Global (NYSE:JOY) under $50/share is a long-term opportunity worth taking advantage of. Since then, investors have had plenty of chances to do so. After this week's FY2014 earning's release, it's not looking as if this opportunity will be going away anytime soon.

The market has hammered the stock since this summer when it peaked in the mid-$60s. This is evident in the returns shown below:

Capital Returns:

  • 5 Yr: (-15%)
  • 3 Yr: (-40%)
  • 1 Yr: (-15%)
  • YTD: (-20%)
  • 3M: (-20%)
  • 1M: (-15%)
  • 5D: (-10%)

So why is the stock taking such a beating, and when will things turn around for investors? The answer to the first question is simple: miners are spending less money. An even simpler answer is found for the second question: eventually.

The real question is: Are you going to buy now and profit in the long run, or will you let crowd psychology scare you away from this value opportunity?

Yes, the company has its challenges both now and in the future. JOY's bookings are down and its cash flow is shrinking. Management has not been mute regarding the negative market conditions ahead for 2015. Most companies in JOY's situation shouldn't be touched with a ten-foot pole.

What makes JOY different? Its high working capital and low debt levels have uniquely positioned the company to efficiently weather this economic storm. And, management is demonstrating the company is on the right track to come out stronger and more profitable when market conditions improve.

Here is a recent statement from CEO Ted Doheny:

"We look forward to 2015 as an opportunity to further drive our strategies and expand our service business. We remain committed to optimizing our global manufacturing footprint and controlling costs. We are responding faster to our customers as lead times have been reduced. Achieving this balance is critical for our business and will make us more efficient, responsive, and competitive when market conditions improve. While 2015 will be another challenging year, we are confident in our ability to deliver results, generate cash and continue to allocate our capital resources in a disciplined manner that will create long-term value for our shareholders."

This is an encouraging statement that only a near-sighted investor would overlook. Let's pick apart some key points:

  • Service Business: Over the last three years, JOY's service business has been growing and now makes up a larger percentage of total revenue. This shift began when management anticipated the decline in equipment sales and has minimized total revenue loss.
  • Global Manufacturing Footprint: Recent acquisitions are helping JOY expand its product offerings to better meet customer demands and offset declining sales in other product lines. Most notably, the purchase of MTI is giving JOY exposure to the underground rock mining market.
  • Controlling Costs: JOY mentioned in this week's release, that the company "exceeded its cost reduction target" in 2014. It's important to note that JOY not only has a cost reduction target, but is beating its own expectations of achieving it. This is more evidence the company is on the right track to adapt and continue its profitability.
  • Generate Cash: Historically, JOY has a pattern of generating positive free cash flow. Even though cash flows have decreased in the last few years, they are still positive. This is no small feat despite the challenging market the company is facing.
  • Long-Term Value: As a testament to its strong financial condition and management's confidence of future free cash flow, JOY increased its dividend for the first time in five years. This is on top of an ongoing share repurchase program. At a time when most companies would reduce their distributions to shareholders, JOY is doing the exact opposite.

Rather than dumping the stock now or waiting for a rally to convince you the stock is on the rebound, why not buy into this solid company while it's selling at a bargain? Sure, the price will wobble over the next 12 months, but the evidence suggests a disciplined and patient investor will be well rewarded.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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