Bucyrus International Inc. (BUCY): Is there a better industrial end market currently than mining? - Goldman Sachs - April 28, 2008
What's changed
Bucyrus 1Q2008 EPS of $1.09 beat GS / consensus EPS of $0.97/ $0.96, revealing
(1) sharply higher margins in Underground mining equipment (12% vs. GS 8%),
(2) strong bookings and 2x book-to-bill, and
(3) potential for sizeable dragline orders to sustain order momentum in 2H2008.
We are raising our 2008-10 EPS estimates by an average of 14% to $6.10/ $8.00/ $8.95 due to accelerating Surface Mining aftermarket volume trends and higher Underground margins. We are also raising our 6-month target by 14% to $149 based on 18.5x 2009 P-E (12.5x EV-EBITDA), or 16% upside.
Implications
We reiterate our Buy rating on BUCY as mining equipment manufacturers stand as major beneficiaries of the intensifying energy reinvestment cycle, with global coal companies’ cash flow forecast +30%+ in 2008-09 by GS analysts, which suggests the bias to our new mining equipment revenue forecasts of +19%/ +17% remains to the upside pending further capacity additions by OEMs.
We continue to prefer BUCY over JOYG due to potential for
(1) DBT merger synergies to continue to surprise on the upside on cost savings, price improvements, and deeper aftermarket penetration, and
(2) BUCY’s stronger position in the dragline market, which appears poised to accelerate.
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).
Valuation
BUCY is at 15.9X 2008E P/E and 9.2X EV-EBITDA, in-line with closest peer JOYG.
Key risks
Executing DBT merger synergies, commodity price weakness, and supplier and raw material pressures. |
