What: Mining equipment manufacturer and servicer Joy Global, Inc.'s (JOY) stock is down 16.5% as of this writing. Anyone who's followed the company over the past year is familiar with this tune, unfortunately, as the company's stock is down 60% so far this year, and more than 70% from last year's high price:
This is a trend that started in 2011, when Joy Global's stock was approaching $100. Today it trades under $19.
So what: Over the past three years, demand for the kinds of heavy mining equipment that Joy makes has fallen sharply, as global oversupply and weak demand of many mined commodities like coal, iron, and precious metals has severely affected mining companies. Those companies are now continuing to cut costs and spending, ordering less equipment, waiting longer between maintenance cycles, and raiding idled equipment for spare parts before ordering new ones.
Joy is feeling the pinch in a big way. In its just-announced third-quarter earnings report, not only did sales and profits come up short of expectations, but the company once again was forced to revise down its full-year guidance. Joy cut $500 million off the top end of its sales forecast, and reduced its earnings-per-share guidance to $1.80. That puts the EPS target for the full year at nearly half of what the company initially forecast -- $3.50 per share -- at the beginning of the fiscal year.
Now what: It may be tempting to buy Joy Global now, but the reality is, the mining downturn doesn't look like it's about to end yet. The reality is, Joy Global -- as well as peers like Caterpillar -- still face a challenging environment, and there could be harder days to come.
With that said, Joy still operates with a sizable profit, and has continued to generate positive free cash and operating cash flows. However, the company looks like it will need to cut costs, or those cash flows could get squeezed and put the company in a pinch before the eventual industry recovery.
Put it all together, and Joy Global is probably a good stock to put on your watch list, but it looks like it's too premature to call this a good time to buy.