Axiom Analysts Call Joy Global 'The Best House In A Bad Neighborhood,' Initiate At Buy

In a report issued Friday, Axiom analysts Gordon L. Johnson II and James A. Bardowski initiated coverage on shares of Joy Global Inc. JOY with a “relative” Buy rating and $21.00 price target. The experts note that, while this is “the Best House in a Bad Neighborhood,” customer bankruptcies are worrisome. Moreover, while the price target implies a 15 percent downside from current stock prices, this is relatively the best performance the firm expects within its Metals & Mining coverage.

According to the note, Joy Global is well established and partially insulated. This positions it somewhat more favorably than its peers, especially since the stock price is down more than 46 percent year-to-date. However, as noted above, they highlight the company’s substantial exposure to US coal miners, a segment in which recent bankruptcies (Alpha, Walter, James River Coal, Patriot Coal and JW Resources) generate plenty of concerns.

Furthermore, the analysts add, this exposure to what seem to be failing US coal miners makes them believe the near-term risk is somewhat “outsized,” and does not justify the general trend of positive analyst ratings. Consequently, they are expecting to see ratings revised to the downside in the months to come.

In addition, and in spite of the relative optimism explained above, Axiom notices that, “should the deflation China is exporting to the world prove perverse/structural, pushing US coal miners into Chapter 7 bankruptcies from Chapter 11s at present, JOY’s problems could be just beginning.” To conclude, the experts remind readers that, “during the last downturn, Harnischfeger (i.e., JOY) went bankrupt. Caveat emptor.”