Komatsu Kicked Around As Management Looks For Weaker Machinery Demand

Not unlike the situation at FLSmidth (OTCPK:FLIDY), investors seem to have fallen out of love with Komatsu (OTCPK:KMTUY), as they pull back from heavy machinery, and particularly those companies tied to the mining industry. It was getting harder and harder to justify Komatsu’s price on the basis of full-cycle cash flow, and with the company setting an operating income target for fiscal 2020 (ending March 2020) that was almost 20% below prior expectations, a lot of worries about mining and construction capex have come home to roost.

It can be a strange thing to go from worrying about over-valuation to the other side of the coin, particularly when you do expect near-term weakness in the business. I do think Komatsu is probably undervalued now on the basis of free cash flow, margins, and returns, but if I were going to take a contrarian position in mining, I think I’d prefer a more productivity-centric story like FLSmidth than Komatsu.

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Komatsu Kicked Around As Management Looks For Weaker Machinery Demand