On Nov 21, we have issued an updated research report on Joy Global, Inc. (JOY). Despite persistent softness in the global mining market that is affecting Joy’s margins, the company has taken up initiatives to optimize its cost structure and develop innovative products and services to win more orders from customers. However, the global supply glut of commodities is creating a downward pressure on prices and neutralizing the positive impact.
This Milwaukee, WI based company is realigning its production capacity to cope with sluggish customer orders and stay competitive amid the ongoing global slowdown. Moreover, Joy Global is relocating production capacity to low-cost regions like China, Poland and South Africa.
It also aims to maximize operating efficiency and the useful life of mining equipment through value-added after-market services, which gives the company a significant competitive edge.
The World Steel Association projects global steel usage to increase 2% each in 2014 and 2015. This will drive demand for met coal which is an essential ingredient for the production of steel. Joy Global’s sales of equipment to coal companies will in that case go up.
Customer concentration is a major challenge that Joy Global has to deal with. The company’s top 10 customers collectively contributed around 43% of fiscal 2013 revenues (up from 38% in the previous fiscal). With consolidation in the mining industry, the company has been deriving revenues from fewer customers. This not only weakens the bargaining power of the company but also makes it vulnerable to customer losses.
In third-quarter fiscal 2014 Joy Global’s earnings and revenues lagged the Zacks Consensus Estimate and declined year over year.
Joy Global currently has a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Better-ranked stocks in the basic materials space include SunCoke Energy Inc. (SXC), Foresight Energy LP (FELP) and Natural Resource Partners LP (NRP). While SunCoke Energy currently sports a Zacks Rank #1 (Strong Buy), both Foresight Energy and Natural Resource carry a Zacks Rank #2 (Buy).
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