Joy Global Inc. (NYSE:JOY) has not had a good time of late. Since the beginning of the year, while the market has advanced significantly, Joy Global Inc. (NYSE:JOY) has experienced a painful drop of more than 23%. At the end of June, Zacks Investment Research also downgraded the company to Zacks Rank #5 (Strong Sell). The downgrade was due to the sluggish second-quarter results and lower guidance.
However, Tweedy Browne, Joel Greenblatt, Brian Rogers, and Paul Tudor Jones have bought Joy Global Inc. (NYSE:JOY) for their portfolios. Should we buy Joy Global now? Let’s take a closer look.
Consistently positive cash flow and a conservative balance sheet
Joy Global Inc. (NYSE:JOY) is a leading maker of mining equipment for the extraction of coal and other minerals and ores, operating in two main business segments: Underground Mining Machinery and Surface Mining Equipment.
Most of its revenue, $3.1 billion, or 54.7% of the total revenue, was generated from the Underground Mining Machinery segment, while the Surface Mining Equipment segment contributed nearly $2.74 billion in sales. In the first quarter of 2013, Joy Global Inc. (NYSE:JOY) experienced a 15.3% decline in the Underground Mining Machinery segment due to headwinds in the mining sector and the soft U.S. coal market.
What I like about Joy Global is its cash flow generating capability. In the past five years, the company has managed to produce consistent positive operating cash flow. In the past twelve months, its operating cash flow was $447 million while the free cash flow came in at $233 million.
Moreover, Joy Global Inc. (NYSE:JOY) has quite a conservative balance sheet. As of April 2013, it had $2.88 billion in equity, $235 million in cash, and nearly $1.4 billion in long-term debt. Investors might be excited about the fact that the company generated as much as 52% of sales from maintenance repair and overhaul of its extensive installed base, which could be considered a stable revenue stream.
The market values Joy Global quite cheaply, at only 4.9 times its trailing EBITDA (earnings before interest, taxes, depreciation, and amortization). The dividend yield is 1.4%.
It is the cheapest valued among its peers
Compared to its peers Caterpillar Inc. (NYSE:CAT) and Deere & Company (NYSE:DE), Joy Global is the cheapest. The market values Caterpillar Inc. (NYSE:CAT) at a much higher valuation at 8.72 times its trailing EBITDA. Caterpillar Inc. (NYSE:CAT) is known to be the global leader in construction and mining equipment, with the majority of its revenue coming from the Machinery and Power Systems segment.