Joy Global's Model Update From Jefferies

• Joy Global, Inc. JOY has seen a more than 61 percent decline in its share price, year to date.
• Jefferies’ Stephen Volkmann has maintained a Hold rating on Joy Global, while lowering the price target from $34 to $20.
• The company reported its F3Q earnings below the estimates and the consensus, while lowering its F2015 guidance, as it continues to face market headwinds.

“We remain cautious as Service bookings continue to decline y/y supporting our expectation for an "L"-shaped recovery,” Volkmann stated, while mentioning that the end market conditions continue to be difficult for Joy Global.

According to the Jefferies report, “The recent acquisition does help diversify the business, though contributing ~$100mln in annual sales does little to offset declining coal related revenues which is north of $2.0bln.”

The company has lowered its F2015 EPS and sales guidance to below the consensus forecasts, implying lower than consensus EPS for 4Q.

Joy Global has however continued with the implementation of its restructuring initiatives, with the aim of improving utilization from 50 percent at present to 75 percent by 2017. However, for 2016, Volkmann expects inventory reduction to lead to “continued underabsorbtion.”

“A weak global economy and continued declines in commodity prices are resulting in further capital spending cuts at global miners and additional delays in MRO investment. We anticipate continued declines for Service in F2016,” Volkmann added.