BMO Defends Joy Global Despite 75% Decline In 2015

• Shares of Joy Global Inc. (NYSE: JOY) have declined 72.01 percent year-to-date, falling to a low of $11.19 on December 14.
• BMO Capital Markets’ Joel Tiss has maintained an Outperform rating on the company, while lowering the price target from $21 to $16.
• Despite the huge year-to-date decline and the stock down 85 percent from its all-time high, Tiss believes that Joy Global’s equity value is almost equal to its inventory levels.

Analyst Joel Tiss mentioned that Joy Global reported its FY4Q EPS ahead of the estimate, although the FY2016 sales and EPS guidance was well below the FY2015 levels.

According to the BMO Capital report, “The company took some impairment charges, including a $1.2 billion writedown related to its past large Chinese acquisition, which was widely expected and cheered by investors.”

Tough Year Ahead

Tiss expects FY2016 to another tough year for Joy Global, with the company’s capital utilization close to 35 percent, or break even, entering the year and the mining industry capex expected to decline another 20 percent. Coal and copper are expected to be among the hardest hit end markets.

“The main source of good news is that Joy Global’s management is amongst the best across the Machinery sector. The company is positioned to generate some $150 million of free cash flow in FY2016 following a much-anticipated dividend cut to $0.01 per quarter for a cash flow savings of ~$75 million,” the report stated.

The EPS estimates for FY2016 and FY2017 have been reduced from $1.05 and $0.85 to $0.35 and $0.60, respectively.