Joy Global Stock Will Put A Smile On Your Face
Wednesday morning, Joy Global announced third quarter earnings that beat expectations and it raised guidance. Joy Global's third-quarter net income of $173 million was 45% more than the year before and it beat analysts' expectations by a penny when it reported adjusted EPS of $1.54 as its total net sales -- excluding a recently sold drilling unit -- grew 29% to $1.1 billion.
For 2011, Joy Global now expects 40 cents a share higher earnings of between $5.70 and $6.00 a share on higher revenue between $4.3 billion and $4.5 billion.
That sounds good -- but should you buy Joy Global stock? Here are four reasons why you might consider doing so:
- Cheap stock. Joy Global ’s price-to-earnings-to-growth ratio of 0.69 (where a PEG of 1.0 is considered fairly priced) means its stock is cheap. It currently has a P/E of 16.5 and its earnings per share are expected to grow 23.8% to $7.12 in 2012.
- Strong earnings reports. Joy Global has been able beat analysts’ expectations consistently and in all but one of its past five earnings reports.
- Increasing sales and profits and cash rich balance sheet. Joy Global has been increasing sales but profits have fallen. Its revenue has grown at a 9.9% annual rate from $2.4 billion (2006) to $3.5 billion (2010) while its net income has increased at a 2.7% annual rate from $416 million (2006) to $462 million (2010) — yielding a wide 13% net profit margin. Its debt has risen but not as fast as its cash. Specifically, its debt rose at a 41.8% annual rate from has $98 million (2006) to $396 billion (2010) while its cash increased at an annual rate of 68.8% from $101 million (2006) to $819 million (2010).
- Out-earning its cost of capital -- and improving. Joy Global is earning more than its cost of capital – and it’s improving. How so? It’s producing EVA Momentum, which measures the change in “economic value added” (essentially, after-tax operating profit after deducting capital costs) divided by sales. In the first six months of 2011, Joy Global's EVA momentum was 3%, based on first six months' annualized 2010 revenue of $3.3 billion, and EVA that rose from first six months' annualized 2010's $140 million to first six months' annualized 2011's $228 million, using a 12% weighted average cost of capital.