Please readthe Joy Global research report ---

Why is the analyst recommending to sell the equity and buy the bonds?

Do you think his analysis makes sense? Why or why not?

Why would a company that is a good bond investment not be a good equity investment?

needed data

Joy Global Inc.

June 10, 2016

Please see the last

2

page

s

of this report for important disclosures

Page

2

Greg R..m@seaportglobal.com

At th

e current equity price of ~$22

/share, Joy's EV is just above

$3.0 billion comprised of $2,168

million of

equity

(assuming 98.1 million shares)

, total debt of $1,007 million and $161 million of cash

resulting in net

debt of

$846 million

.

J

oy's stock price moved up post the recent 2Q earnings release, which was better

than expected at $.09/share versus a consensus estimate of break

-

even.

T

he

FY

2016 consensu

s

estimate EB

I

T

DA is $22

2

million according to Bloomberg

, resulting in a

current

~

13

.

6

x EV/EBITDA

multiple

at $22

/share

.

W

e think a normal EV/EBITDA multiple

for Joy

should be in the

7.0

x

-

9.0

x range

, while

the historical

range has been between

5.4x and 12.0x

and

an average of

8.4x

(see chart below

)

.

Comparable

companies for Joy are

somewhat limited but Terex Corp. (rated B1/BB) currently trades at an 8.6x

EV/EBITDA multiple on FY16 EBITDA estimates while Caterpillar (rated A2/A) trades at 9.5x

-

both well

below where Joy is currently trading.

A 7.0x multiple on the consensus EBITDA n

ets to a

$1.6 billion EV or a

$

7.19

/share

equity

price,

while a

9.0x multiple nets to a $

2.0 billion EV or a $

11.

70

/share price, which are

67

% and

4

7

%

below the current

price of

~

$

22

/share.

Allowing that we are in "trough" conditions, the

EV/EBI

T

DA

multiple can

potentially

run mode

rately

higher

than the historic range.

Applying a 10.0x multiple would put the equity value at closer to

~

$1

3

.95

/share

which

still

represents ~3

7

% of potential downside from

the current price of

~

$22

/share

. Accordingly, w

e

think the

FY16 13.6x

EV/EBITDA multiple

,

is

too optimistic given our expectations of

a weaker operating

environment fo

r

JOY

.

The risks to our sell recommendation include a substantial increase in capex spending

in the mining sector, M&A risk, and the cur

rent short interest in the equity at

~

16.7

%

, or roughly 5.8

days to cover the

open short

(

Bloomberg

estimates)

.

Additionally,

JOY's

revenues are skewed mor

e toward its service

segment (76% of revenues for 1H16LTM

versus 69% if FY14)

which tends to be a mo

re stable revenue

stream

compared with original equipment sales.

At the same time, we recommend investors buy the 5.125% notes of 2021 currently trading

near

$

91

.

0

0

or ~

7.20

% YTM.

Despite

JOY's

weak

operating results

over the last several quarters and

expectations for

continued

depressed operating results in the

near term, we think JOY's

limited total debt outstanding and relatively

low le

verage along with sufficient EB

I

T

DA/cash flow generation make the 2021 notes attractive at

current levels.

JOY

reported 1H

16LTM operating cash flow of $4

55

million and free cash flow

of $362 million after

capex of $53 million and dividends of $41

million (dividend now reduced to ~$4 milli

on annually).

Additionally,

JOY

has substantial liquidity with cash on the balance sheet of $1

61 million and an

additional $738

million available on

its RCF (matures July 2019) at the end of 2

Q16. (In December

2015, JOY modified the maximum leverage cove

nant under its credit agreement to 4.5x through 2Q17.)

Additionally, leverage at

JOY

has increased in recent

quarters from 1.5x

net debt/EBITDA for 2014 to

3.7

x for the 1H

16LTM period. Despite the

increase, we expect

leverage

should remain manageable

for

JOY

in the coming quarters

(3.8

x assuming no change in

net debt and the consensus

$222

million of

EBITDA).

Additionally, g

iven the company's ratings decline

to Ba3/BB+

, we

believe there is a

possibility that

a

portion or possibly

the entire currently

unse

cured revolver could become secured at the time of

renewal

.

However, at that point, it is unlikely the company will have any debt due in front of the October 2021

maturity date on the 2021 notes.