I was looking at this name under $42 but held off [Sep 29: Interested in Joy Global Under $42 But...]
The company announced in early September (when stock was around $50) it was buying back 1/5th of its shares (at the time!) this year and 2/5ths by 2011 [Sep 11: Joy Global to Buyback 1/5th of Shares this Year - 2/5ths by 2011]- that was when it was a $5B company - meaning the $1B share buyback would extinguish 20% of its shares. Now the company is only being valued at $1.5B!
To date the company has bought $837M of their $1B for 2008, leaving just over $160M left. Operating cash flow last quarter was $142M and we'll probably get an update on their buyback activities in the next earnings report mid December. And there is still another $1B in the tiller by 2011. Which means Joy Global is going private the way things are going. Insane. Or if they remain public their earnings PER share, even if earnings fall off a cliff should climb as the denominator in income / share count will be shrunk by a huge amount. Not that valuation matters...
Notwithstanding all that, lower steel is good for them as is lower petrol prices as many derivatives (rubber for tires for example) are petrol based - so their whole input cost chain decreases which was one of my main beefs with equipment companies. Even if their business falls off by half due to lack of credit financing at these prices it won't matter. I cannot pass on these valuations after being very patient on the long side. Could go lower in 6 days or 6 weeks but in 6 months it might not even be public.
However this is the case study that even share buybacks mean nothing in a panic. I'll just wait for the company to tender an offer for my shares as they exit the public markets. Cash flow is king.
Long Joy Global in fund and personal account
