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.

What Now for Joy Global (Nasdaq:JOYG), Komatsu (OTC:KMTUY.PK), After Caterpillar (NYSE:CAT) Acquisition of Bucyrus (Nasdaq:BUCY)?

There is no doubt the announced acquisition of mining equipment-maker Bucyrus (Nasdaq:BUCY) by Caterpillar (NYSE:CAT) has dramatically changed the sector, and major competitors like Joy Global (Nasdaq:JOYG) and Komatsu (OTC:KMTUY.PK) have a challenge on their hands against a company that now will be able to compete in almost every aspect of mining machinery at a time the market is expected to generate increasing demand for years.

The obvious question is whether the rest of the industry will make moves to consolidate in light of the merger between Caterpillar and Bucyrus in order to generate larger scale and diversity of product lines.

Joy Global will compete against Caterpillar in the lines carried by Bucyrus, belt systems, surface drills and draglines, while Komatsu will compete against the existing line of Caterpillar, including trucks dozers, wheel loaders and excavators.

Those two companies will probably be watched closely for hints they, or others, may be ready to grow through merger and acquisition.

As for the underlying importance of the move by Caterpillar, it shows they are convinced the mining sector has a long and prosperous rode ahead of it, and now they are positioned strongly to be a major player in providing the tools needed for the industry to be successful.

Morgan Stanley (NYSE:MS) Says Sell Joy Global (Nasdaq:JOYG)

A day after Morgan Stanley (NYSE:MS) suggested to shareholders they should sell shares in Joy Global (Nasdaq:JOYG), they've quickly rebounded, and are up over 1 percent in trading on the day so far.

Joy Global competes with Bucyrus (Nasdaq:BUCY), which Caterpillar (NYSE:CAT) is acquiring, generating the concerns over Joy's ability to compete.

Morgan Stanley cut their rating on Joy from "Equalweight" to "Underweight," although others have had a more positive response, like RBC Capital, which raised their price target on them.

Morgan Stanley analyst Robert Wertheimer, “BUCY had already been selling bundled product against JOYG,” wrote Wertheimer, and “with Cat’s added product and service expertise, the intensity will be higher. We see increased difficulty in meeting consensus estimates.”

Joy was trading at $75.25, gaining $0.73, or 0.98 percent at 2:56 PM EST.