Axiom: Joy Global Might Be Making The Same Mistake It Made Last Year

In a new report, Axiom analyst Gordon Johnson discusses the reasons why he believes Joy Global Inc. JOY is repeating its 2015 guidance mistakes again this year. By calling for a back-end loaded 2016 for earnings and revenues, Johnson believes that Joy Global is setting itself up for multiple downward revisions later this year.

“Along these lines, considering: (1) the 85% R^2 between JOY’s revs and TSM bookings, assuming it holds, suggests F16 sales will come in at ~$2.29 bn vs. JOY’s guide of $2.5bn (using the same approach when JOY gave F15 rev guidance of $3.7bn 3/15/15, one would have modeled F15 revs at $3.0bn VS $3.2bn reported), (2) C16 AGMC is expected to fall -35% y/y, & (3) coal markets are expected to remain structurally oversupplied thru C16, we believe, similarly to C15, C16 will be defined by multiple earnings revisions lower,” Johnson explains.

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In terms of value, Axiom is calling for fiscal 2017 EBITDA of $202 million. By applying a 9.0x multiple, the firm maintains its $10 2016 price target for the stock.

With about 40 percent downside from its current level, Axiom maintains its Sell rating on Joy Global. The stock is already down 57.7 percent in the past year.

Disclosure: the author holds no position in the stocks mentioned.