Bucyrus International Inc. (BUCY): Fundamental momentum still building - Goldman Sachs - February 19, 2008
What's changed
We are raising our 2008-10 EPS estimates for BUCY—a leading mining equipment provider—by an average of 11% to $5.65/$7.05/$8.05 from $5.05/$6.35/$7.35 on (1) higher revenues as global mining equipment demand is intensifying, and (2) improved margins via faster acquisition savings (DBT SG&A expected down to 10% in 2008, or about a year ahead of time) and higher absorption, with steel costs locked in for 2008. We are also raising our six-month price target to $110 (from $99) based on 15.5X our new 2009 EPS (9.5X EV/EBITDA), or 17% upside potential. We maintain our Buy rating.
Implications
We believe BUCY is well-positioned to outperform our Machinery and Diversified Industrials group over the next six months, but are wary of chasing shares near term given
(1) normal high beta risk in a volatile market,
(2) very strong recent performance, and
(3) the fact that a lot of good news on strengthening demand in global mining markets has been revealed of late.
Valuation
BUCY is trading at 16.8X/13.Xx our 2008-2009 EPS estimates vs. 18.4X/15X for its closest peer, JOYG.
Key risks
Executing DBT merger synergies, commodity price weakness, and supplier and raw material pressures. |
