Friday, November 19, 2010

Joy Global (NASDAQ:JOYG) Gets Good/Bad from Bucyrus (Nasdaq:BUCY), Caterpillar (NYSE:CAT) Deal

As the market digests the implications of the acquisition of Bucyrus (Nasdaq:BUCY) by Caterpillar (NYSE:CAT), Joy Global (NASDAQ:JOYG) is receiving reviews of mixed blessings from the deal.

Barclays (NYSE:BCS) agrees, saying, "We think the implication of the Caterpillar (NYSE:CAT)-Bucyrus (Nasdaq:BUCY) deal announced on 11/15 is a double-edged sword for JOYG, the only other major international
competitor for BUCY on large surface/ underground mining equipment. On one hand, we think it affirms our view of a continued long-duration mining up-cycle. On the other hand, the combined CAT and BUCY could be a more difficult competitor for JOYG over the longer term, especially if the idea of "bundling" a wide array of mining products/services proves to be a significant competitive edge...Based on our increasing conviction in continued strength in mining capex for the next few years, we raise our target multiple to 17x from 16x and FY2011 EPS estimate to $4.85 from $4.65."

In the short term this should be no problem for Joy Global, and they could perform strongly on the basis of the strength in the mining sector. Over the long term, competitive challenges are sure to emerge, generating speculation if Joy may eventually be a buyout target for a large company. BHP (NYSE:BHP) anyone?

Joy closed at $75.58, gaining $0.52, or 0.69 percent. Barclays has a price target of $82 on them, increasing it from $74.

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