Update Joy Global (JOYG)

06/02/2011 3:41 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Another great quarter from mining equipment maker Joy Global (JOYG): earnings per share for the second quarter of the company’s fiscal 2011 year came in a $1.52, 17 cents a share above Wall Street estimates. Revenue climbed 19% from the second quarter of fiscal 2010 to $1.06 billion. That was slightly above the consensus forecast of $1.03 billion.

Another increase in guidance for the full 2011 fiscal year: For fiscal 2011 the company now sees earnings of $5.30 to $5.60 a share (former guidance was $5.10 to $5.40.) Wall Street analysts had been projecting earnings per share of $5.41. Revenue, the company now projects, will total $4.1 billion to $4.3 billion. That’s above former guidance of $4 billion to $4.2 billion. (The Wall Street consensus was $4.17 billion.)

And solid trends beyond the current year: Bookings are still climbing with an increase of $297 million from the first quarter of fiscal 2011. Backlog increased by $462 million to $2.6 billion. Key commodity markets—copper, for example—remain in a supply/demand deficit that still has a while to run. In the case of copper, for example, until 2013 or later, Joy Global said. In its conference call the company noted that it continues to see new projects—and therefore new potential customers—at a rate that matches current bookings.

The one thing that I was worried about—declining margins—wasn’t a factor in the quarter. Higher commodity prices are good for Joy Global’s costumers but could be a problem for the company itself if the raw materials that it buys to make its equipment are rising in price faster than the company can find efficiencies or pass on the increase to customers. But in the quarter operating margins at Joy Global actually increased to 22% from 20.1% in the second quarter of fiscal 2010.

On May 16, after the close of this quarter, the company announced a $1.1 billion all-cash deal to acquire LeTourneau Technologies from the Rowan Cos. (RDC). The acquisition is expected to close in the third quarter. LeTourneau specializes in giant electric-drive loaders for surface mines and oil and gas drilling operations.

Shares of Joy Global are up 5.97% today, June 2, as of 2:30 New York time on the strength of the company’s news.

Joy Global isn’t likely to get especially cheap short of another collapse in global commodities. The shares currently trade at a multiple of 16 times projected earnings. Wall Street sees earnings growing at 23% this year.

Given the current volatility in commodity prices—and the price of commodity stocks—you might want to wait for these shares to drop back to $85 or so. The stock is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com//

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Joy Global as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

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