Wednesday, August 31, 2011

Joy Global Stock Will Put A Smile On Your Face

Coal mining equipment maker Joy Global (NYSE: JOYG) just raised its financial outlook. Does this mean you should buy its shares?

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.
This company looks like it might be worth considering as a place to park your money.


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