William Blair Sees Joy Global Shares Outperforming, Increases PT To $67

In a research note published Monday, William Blair analyst Lawrence De Maria maintained an Outperform rating on Joy Global (NYSE:JOY) and raised his price target to $67 (from $65), which represents a 10.7% upside from where the stock is currently trading.

De Maria wrote, “Joy Global gave some qualitative color on 2015, which we discuss in this note. We believe a base case implies flat original-equipment (OE) sales and slight growth in aftermarket sales; therefore, initial investor expectations for management’s fiscal 2015 guidance, when delivered in December, might be a wide range of $3.35 to $3.85, which would incorporate multiple scenarios. This outlook would follow the company at least hitting the low end of fourth-quarter guidance, into which management believes it has decent visibility. Although there are not many upcoming catalysts aside from earnings and guidance and the OE upcycle is still likely to be indefinitely elusive, the downside risk seems manageable and EPS growth based on aftermarket growth, restructuring/cost-saving benefits, MTI accretion, a few cents’ benefit from South African post-labor issues and share repurchases suggests 10% to 15%-plus EPS growth next year on flat OE sales. It is hard to get bullish on anything related to mining, but if the story transitions into a steady growth/aftermarket story, then the negative case is disarmed and the short interest could shrink further. Joy enjoys a healthier balance sheet than some of the U.S. coal miners, so the same risks do not apply. Execution was solid in the quarter based on some new order wins and better-than-expected decremental margins. There is still roughly $600 million available under the $1 billion repurchase program, and Joy bought $65 million worth of stock in the quarter (free cash flow was $67 million). Therefore, with the potential for earnings growth next year, we see upside to the upper $60s based on a higher multiple off trough EPS and significant aftermarket mix. The downside case should be contained in the near term unless commodity prices completely collapse and macroeconomic conditions worsen. Overall investor expectations are likely to remain relatively low. We expect Joy to at least hit the bottom end of its implied fourth-quarter guidance, and we remind investors that the first quarter is always the seasonally softest of the year. Joy is not an overly exciting story and it still faces numerous headwinds, but the worst might now be behind it, though positive re- rating catalysts are limited.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Lawrence De Maria has a total average return of 5.4% and a 58% success rate. De Maria has a -20.3% average return when recommending JOY, and is ranked #1413 out of 3273 analysts.

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