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Gold/Mining/Energy : Joy Global

JOY 28.30

0.0%

Apr 13 4:00 PM EDT

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From: Dennis Roth	4/15/2008 9:07:29 AM
	of 28

Americas: Machinery: Mining: Raising BUCY & JOYG targets on intensifying commodity demand Goldman Sachs Note April 15, 2008 United States Raising mining equipment targets as visibility continues to rise We are raising our 6-month price target for Bucyrus to $131 (18.5x 2009 P-E, 11.3x EV-EBITDA) from $110 and for JOYG to $79 (18.2x 2009 P-E, 11.7x EV-EBITDA) from $66 due to rising visibility on sustained growth in mining company capital spending and potential for incremental margin improvements to continue driving upward estimate revisions for mining equipment stocks. Consensus underestimates intensifying commodity demand Our 2008-2009 EPS estimates remain 5%/ 7% above consensus on average for Bucyrus and Joy Global as we believe global mining capital spending plans will be revised upwards as commodity strength continues. We forecast total mining equipment sales growth of +20%/ +11%/ +10% in 2008-2010 as coal, metals, and other commodities producers attempt to aggressively expand production. At current commodity prices, we believe our 2009-2010 estimates would likely prove too low. We also believe that as volumes recover and plant absorption improve, incremental margins have upside relative to our +20%-25% assumptions. Upcoming earnings to reinforce bullish end market outlook We could expect strong CY1Q08 earnings and outlook from BUCY and JOYG, though recent strong performance - mining equipment stocks are +18% over the past three months vs. +8% for our coverage - near-term upside in the shares may be limited. We expect BUCY CY1Q EPS (April 24) of $0.97 to be ahead of consensus of $0.96 on stronger margins (DBT integration), with strong orders and for 2008 consensus to move higher (GS $5.65 vs. consensus $5.11). We expect Joy Global (May 29) FY2Q EPS of $0.86 vs. consensus of $0.82 on stronger top-line and for guidance to move up as well (GS $3.45 vs. consensus $3.40). Best buy idea We continue to prefer BUCY over JOYG due to: (1) potential for DBT merger synergies to surprise on the upside, and (2) potential for stronger backlog build as dragline orders accelerate in late 2008 or early 2009. Risks US recession and a stronger US dollar could impact US coal inventories.

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