FBR Upgrades Joy Global To Outperform, Lifts Target To $25

FBR’s Lucas N. Pipes expressed increased confidence in the growth opportunities that lie ahead for Joy Global Inc. JOY.

Pipes upgraded the rating on the company from Market Perform to Outperform, while raising the price target from $14 to $25.

Doing Well In A Tough Environment

“Despite exceptionally weak domestic coal markets, and their effect on JOY’s service bookings in the most recent period, the company was able to overcome this and still report solid orders, including strategic wins in India and the Canadian oil sands,” the analyst mentioned.

Related Link: UBS Maintains Sell On Joy Global, Yet Lifts Target To $11

Pipes also noted that Joy Global’s organic order rate was tracking well against the estimates, which has de-risked the outlook for 2017.

Pointing to the company’s layering in “recurring” bookings of $560 million in F2Q16, the analyst said that this “sets up a solid floor, even as customers are still under immense pressure.”

Despite the tough market conditions, the company has been able to prove its competitiveness even through trough conditions.

In addition, although there have been headwinds to Joy Global’s coal service business, the company has maintained the lower end of its revenue guidance.

Positive Long Term Outlook

Pipes believes there could be long-term upside to the company’s various initiatives, including “(1) new product development; (2) hard rock mining; (3) consumables market penetration; and (4) global market development, as demonstrated especially by the company’s strong F2Q16 order book in India.”

Related Link: BofA Ses Encouraging Signs For Joy Global

The analyst also noted that the operating margins for Joy Global’s surface segment rebounded to 12.5 percent in F2Q16.

Pipes expects gradual improvement in margins through the year, with 2017 and beyond seeing margin stabilization, as service demand sees an uptick and OE sales recovers further.

The company has also raised its cost reduction targets, which the analyst believes would “bolster near-term outlook and long-term strategy.”