Zacks.com releases the latest Analyst Interview. Today’s interview is with senior analyst Mario Ricchio, who discusses Ingersoll Rand (NYSE: IR), Joy Global (Nasdaq: JOYG) and Caterpillar (NYSE: CAT).
A synopsis of today’s Analyst Interview is presented below. The full article can be read at http://at.zacks.com/?id=2678.
With the bifurcated global economy, how does it impact your view of Ingersoll Rand’s planned sale of Bobcat?
Well, it makes a lot of sense. Ingersoll Rand (NYSE: IR) has spent the last couple years transforming itself from a heavy machinery group and into a diversified industrial company. The sale of Bobcat is just another step along the way of realizing that goal. Since announcing the sale, we have become more constructive on the stock.
The biggest positive from the deal is that IR reduces exposure to the U.S residential housing market, which has been a major drag on earnings. We had expected a $4 billion price tag, so we were surprised South Korea's Doosan Infracor paid almost $5 billion, especially at this point in the cycle. When the deal closes, and it should, the company becomes a levered play on the strengthening global economy with the headwind of U.S housing behind it.
If you had to pick one or two Buys in machinery, what would they be (and why)?
We still like Joy Global (Nasdaq: JOYG). The company recently lowered its guidance on a weak coal market, and the stock tanked on the news. Coal producers for the most part have announced production cuts, which delays original equipment orders. We anticipated the news of a weak coal market and thought a recovery was unlikely until 2008. But U.S coal is just one piece of their business. The demand for mining equipment remains so strong that the order book is full for the next year. Supply constraints indicate JOYG has trouble keeping up with rising demand. The company is working to bring capacity online, and as it does, we would expect an acceleration of sales growth in the back half of this year.
How would you advise investors interested in diversifying into machinery stocks?
We would look at the industry players on a company by company basis. Growth rates will depend on the respective end markets served and the level of international exposure. We suggest underweighting companies, such as Caterpillar (NYSE: CAT), which are heavily exposed to U.S. residential construction, or companies beating earnings estimates solely off of a lower share count. Instead, we would look at companies with strong overseas exposure to construction and infrastructure, and domestically to road building and mining-machinery.
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