On Jun 25, Zacks Investment Research downgraded Joy Global, Inc. (JOY) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Joy Global witnessed sharp downward estimate revisions after reporting mixed fiscal second-quarter results and lowered guidance. Shares of this mining major have been declining since it reported weak earnings results. Moreover, given the expected decline in earnings, we believe that it has more downside left.
On May 30, Joy Global reported second-quarter fiscal 2013 earnings per share of $1.73, lagging the year-over-year earnings by 22.4%. Results, however, surpassed the Zacks Consensus Estimate by 11.6%.
Earnings declined largely due to lower net sales, which were down 11.7% year over year. The decline was primarily due to lower contribution from Underground Mining Machinery.
Backlog slipped to $2.2 billion, dipping sequentially from $2.4 billion.
The lingering economic problems in the Euro-zone and the sluggish economic recovery in China continue to impede growth of global commodity demand. According to Joy Global, the industrial sector, which drives demand for mining equipment, is yet to benefit from the global economic recovery.
Subsequently, Joy Global trimmed the upper end of its fiscal 2013 revenue guidance to $4.9–$5.0 billion from the previous range of $4.9–$5.2 billion. The bottom line was thus revised to $5.60–$5.80, down from $5.75–$6.35.
The company’s dividend yield of 1.40% also compares unfavorably with the industry average of 2.89% and another major, Caterpillar Inc. (CAT) with yield of 2.92%. Nonetheless, it compares favorably with Astec Industries, Inc. (ASTE) with yield of 1.19%.
The Zacks Consensus Estimate for fiscal 2013 decreased 5.3% to $5.86 per share over the last 30 days. For fiscal 2014, most of the estimates were revised downward over the same period, sinking the Zacks Consensus Estimate by 9.7% to $5.61 per share.
Other Stocks to Consider
While we remain bearish on Joy Global, H&E Equipment Services Inc. (HEES) with a Zacks Rank #2 (Buy) is worth considering.
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