By Spencer Jakab
A race to the bottom is dangerous--especially near big holes in
the ground.
Few are watching the slumping mining industry more nervously
than Joy Global Inc., the sector's leading supplier of heavy
equipment. Benchmark iron-ore prices are down by nearly half this
year, while seaborne thermal coal is down by one-quarter to a
five-year low. Even so, large miners such as BHP Billiton Ltd. and
Rio Tinto PLC are waiting for weaker companies to curtail
production before making drastic cuts themselves.
Investors are betting Joy won't live up to its name when it
releases results Wednesday for the fiscal year through Oct. 31. The
stock has lost 25% of its value since management updated earnings
guidance on Sept. 4, even as analyst estimates have drifted to the
lower end of the company's forecast range of $3.15 to $3.30 in
adjusted earnings per share. Reported earnings are seen at $3.01 a
share, down sharply from $4.99 in fiscal 2013.
A disappointment could dent the stock again given general market
unease; Joy's shares fell after three of its past five earnings
reports. Despite a bleak outlook for miners in 2015, though, that
may represent a buying opportunity.
At first glance, Joy seems less worthy of a gamble than, say,
oil-field-services companies, who are having an awful year of their
own. An index of those companies is off by about 40% from its
52-week high compared with a little less than 30% for Joy.
Consider, though, that many key commodity prices began falling
well before crude did. Thermal coal, for example, has been slumping
in the U.S. market since 2008. The market for seaborne
metallurgical coal also weakened well before oil, which was above
$100 a barrel five months ago
And while Joy's fiscal third-quarter results released in
September had already looked bleak, they showed signs of
stabilization. Net sales were off by one-third, year over year, but
the company's backlog had risen. On a rolling 12-month basis,
bookings had stabilized for the first time in 2 1/2 years. Even if
those turnaround signs strike some as premature, based on recent
macroeconomic news, that appears amply reflected in the share
price.
The time to buy is before the light appears at the end of this
mine shaft.
Access Investor Kit for Rio Tinto Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=AU000000RIO1
Access Investor Kit for BHP Billiton Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=GB0000566504
Access Investor Kit for BHP Billiton Plc
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US05545E2090
Access Investor Kit for Joy Global, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US4811651086
Subscribe to WSJ: http://online.wsj.com?mod=djnwires