Joy Global: Swings at Trough Matter Less Now, and More Reasons for Machinery Optimism From Barclays
The following is an excerpt from Ben Levisohn | February 1, 2016 | Barrons.com |
Barclays analysts Robert Wertheimer and Adam Seiden explain why they not only upgraded Joy Global (JOY) to Overweight from Equal Weight, but the entire US Machinery Industry to Neutral from Negative:
We upgrade JOY to OW, PT $14. Mining is extremely depressed, and the aftermarket portion, depressed as well, has substantial value if enough costs can be taken out to reflect the new reality. Peak earnings of ~$7 per share were likely more than half aftermarket/service and compare with current share price of $10. What had kept us on the sidelines was that this quarter should continue a string of weak results, on tough markets in Appalachia and South Africa. The swings at trough may matter less now however…
In this note we upgrade our U.S. Machinery Industry view to Neutral from Negative…We see three changes since our launch that warrant a more moderated approach to investing in machinery, potentially putting in a floor on lower quality names.
First, sentiment has bottomed, or close enough to it…Sell side ratings on machinery stocks have never been lower, and in fact are as low as previous crisis troughs in Housing, Auto, and Airlines. Since then there have been a few more downgrades, on Caterpillar (CAT) and United Rentals (URI). Buy side sentiment feels at best uninvolved/apathetic, though that is in some ways slightly improved from trough.
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