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Time To Consider Joy Global

Summary

Joy Global stock has been in free fall since mid-May 2015. However, it seems that the stock has reached a bottom in the last few weeks.

In my view, it is quite impressive that the company has been able to generate considerable free cash flow in three of its last four quarters despite the challenging market environment.

Joy has compelling valuation metrics: its trailing P/E is extremely low at 7.15, the stock is trading way below book value, and the EV/EBITDA ratio is very low at 5.25.

While waiting for a significant rebound in the price of commodities, investors can enjoy the generous dividend yielding about 4.5% a year.

Joy Global (NYSE:JOY) stock has been in free-fall since mid-May 2015. In fact, the stock has lost 60.4% from its May 11 price of $44.75. However, JOY is up 26.5% from its 52-week low of $14.02 from October 02, and is moving in a trading range. It seems that the stock has already reached a bottom, hence creating an excellent opportunity to buy it at a very cheap price. Of course, there is no guarantee that the last few weeks' trading range of between $16.0 and $18.0 a share is the bottom for this cycle. However, the upside potential is much higher than the downside risk, in my view. After all, the stock is currently trading way below book value, generating considerable free cash flow, and it pays a very rich dividend, now yielding 4.5%.

(Chart: TradeStation Group, Inc.)

Joy Global is a leading global manufacturer of mining equipment and a provider of aftermarket parts and services used in the extraction of coal, iron ore, copper, oil sands and other minerals. The steep price fall of many commodities and a supply surplus at its clients (particularly of coal and iron ore) have caused a sharp decrease in demand for its products.

(Source: Morgan Stanley 3rd Annual Laguna Conference)

On September 03, Joy Global reported its third-quarter fiscal 2015 financial results, which missed EPS expectations by $0.07 (11.5%). The company showed negative earnings per share surprise in its last quarter after beating expectations in its previous quarter, as shown in the table below.

(Source: Yahoo Finance)

Third-Quarter Highlights

  • Bookings at $635 million, down 31 percent from a year ago
  • Service bookings at $537 million, down 16 percent from a year ago
  • Net sales at $792 million, down 10 percent from a year...

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