Joy Global 'Fails' Stress Test, Not The First Industrial Stock To Face Wall Street Trouble

Axiom’s Gordon L. Johnson II downgraded the rating for Joy Global Inc. (NYSE: JOY) from Hold to Sell, while reducing the price target from $11 to $10. He believes there is downside to the company’s original guidance for 2016.

Analyst Gordon Johnson estimated that Joy Global’s sales in 2016 would come in around $2.4bn, at the lower end of the company’s current guidance of $2.4-$2.6bn. He added that Joy Global’s OEM and after-market margins are likely to remain under pressure, given that Rio Tinto [Rated: Hold] and FMG [Rated: Sell] have both guided to capex below depreciation, which implies that two of the world’s largest miners are “actively underinvesting in equipment upkeep.”

Joy Global's shares had gained 33 percent over the past month, versus a mere 2 percent gain in the S&P 500. Another industrial stock that has climbed over the past month [by 10 percent], and has a negative rating by Wall Street is Caterpillar Inc. (NYSE: CAT).

Caterpillar

In a separate report, Macquarie’s Sameer Rathod maintained an Underperform rating for Caterpillar, with a price target of $58.

An analysis of US equipment listed on the company’s website on January 1, and comparing this to prices on December 4 indicates a 62 bps decline in uniquely listed equipment pricing, analyst Sameer Rathod said. He added that the weakness in pricing is attributable to slowing end-market demand, excess inventory and stiffening competition.

“Although the price declines have moderated this past month compared to prior months, we continue to think pricing will be weaker in 2016 than 2015 given the weak end market demand we see,” Rathod wrote.

Moreover, the dollar value of inventory had declined by 3.2 percent m/m, marking the first decline in inventory since Macquarie started tracking this data. Rathod believes that a part of the decline was on account of the congress making provisions of section 179 permanent as well as yearend fleeting needs.

“Should we see continued declines in listed inventory, it could be the first signs of taking steps in the right direction for a recovery,” the analyst commented.

Rathod expects 2016 to be a challenging year, given that the worst of the oil and gas decline seems to be “still ahead of us.”