We are confident about the long-term fundamentals of the mining industry, which is further supported by a sustainable secular shift in commodity demand in the emerging economies. This will provide Joy Global (JOYG) substantial growth potential once the global economy emerges from the ongoing turmoil.

Joy Global aims at maximizing operating efficiency and useful life of mining equipment through value-added aftermarket services, which gives the company significant edge over its competitors. Additionally, the stable revenue stream from the high-margin aftermarket operations help Joy Global offset its cyclical original equipment business.

Of late, Joy Global management has implemented several strategies to optimize cost-structure and realign production capacity to cope with the slowing customer orders and stay competitive amid the ongoing global slowdown. The company is pushing its overall inventory and working capital efficiency. Moreover, Joy Global is looking at increasingly relocating production capacity to low-cost regions like China, Poland, and South Africa. These actions will improve operational efficiency, boost profitability and also solidify long term viability of the company.

Joy Global has a strong balance sheet and a solid cash flow generating profile. The capex requirements should be reduced markedly when the company completes its ongoing projects. As of July 31, 2009, Joy Global had $266.6 million in cash and $243.3 million in available credit line; debt-to-capital was 38%. It has a favorable debt maturity schedule with the bulk of its long-term debt obligations falling due after
2015.

We see Joy Global shares performing above the broader market going forward and as such recommend it as Outperform.

Zacks Investment Research
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