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Caterpillar or Joy Global: Which Should You Dig Into?

If you want a pure-play mining-equipment maker, the answer is easy

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The farm and construction equipment industry had a strong October, with both Caterpillar (NYSE:CAT) and Joy Global (NASDAQ:JOYG) achieving gains in October that were higher than the S&P 500, which was up 10.9%. Caterpillar was up 24.7% and Joy Global 39.8%. Year-to-date, however, they’re both in negative territory, about equal with the index. Still, both are heating up — so which one should investors flock toward?

Analyst Consensus

First, let’s take a look at Caterpillar. Its third-quarter report was exceptional, delivering record profits and revenues. Earnings per share beat the consensus estimate by 21%. According to Caterpillar, its backlog in the quarter was higher than it’s ever been, and this prompted analysts to up their guidance for 2011 and 2012. Analysts are calling for 2012 EPS of $9.04 per share. If CAT hits its 2011 estimate of $6.85, that will mean earnings growth of 32% next year. It’s hard to bet against that.

As for Joy Global, it expects revenues and earnings per-share for fiscal 2011 of at least $4.3 billion and $5.70 per share. Its backlog as of the end of the third quarter was $3.2 billion — substantially higher than the $1.82 billion in fiscal 2010. The primary reason for this growth continues to be the success of the mining business in general.

Joy Global’s year-end is Oct. 31, whereas Caterpillar’s ends on Dec. 31, so annual estimates don’t compare perfectly but nonetheless are helpful to look at. Joy Global’s fiscal 2012 earnings estimate is $7.20 per share. The 2011 estimate is $5.93, which is the high end of the company’s guidance as of the end of the third quarter. Joy Global has delivered positive earnings surprises in three of the past four quarters. Assuming JOYG earnings hit $5.93 per share, next year’s earnings growth will be approximately 21% year-over-year. Not quite as high as Caterpillar, but very reasonable.

Direct Competition

Caterpillar and Joy Global became much closer competitors in July when Caterpillar completed its $8.8 billion purchase of Bucyrus International, a manufacturer of high-productivity mining equipment for the surface and underground mining industries. That’s Joy Global’s bread and butter. At the end of 2010, Caterpillar’s mining revenues were 11% of overall revenue compared to 100% for Joy Global.

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