Mining And China Seem To Be Supporting Komatsu

Komatsu (OTCPK:KMTUY) (6301.T) has been lagging peers and rivals like Caterpillar (CAT) and Hitachi Construction Machinery (OTCPK:HTCMY) over the past couple of years, despite solid order trends at Komatsu, good initial results in its automation efforts, and further synergies to be gained from the Joy Global deal. Over the last couple of months, though, Komatsu shares have perked up a bit and risen more than 10% since my last update, on renewed enthusiasm for the mining business and the Chinese construction market.

Komatsu still looks a little undervalued, but the company has a lot riding on expanding its mining business and achieving those hoped-for synergies in the mining business. Although the construction business isn’t done yet for this cycle, the mining business really needs to step up for the shares to keep moving higher.

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Mining And China Seem To Be Supporting Komatsu

Komatsu Sliding Despite Ongoing Order Growth

Even though many companies in the mining industry are saying the capex recovery is only just starting, and companies in the construction space still see more upside for equipment demand, the shares of major equipment manufacturers have been reflecting a very different assessment. Komatsu (OTCPK:KMTUY) shares are down about 15% since my last update in the spring of this year, and down 20% year-to-date though up about 12% over the last year, as investors have been selling down Caterpillar (CAT), Hitachi Construction Machinery (OTCPK:HTCMY), Sany, and Manitowoc (MTW) on worries about cyclical demand and margin pressures from input costs (namely steel), not the mention the risk of accelerating global trade tensions.

As it concerns Komatsu, I think the year-to-date performance might be a little overdone. I do have some concerns about slowing construction demand, but I think Komatsu is looking at a good opportunity in the mining business, and I think the company’s significant investments in automation (both external and internal) will pay off in the coming years. With what appears to be a valuation that is already baking in a lot of weakness, I think these shares are worth another look today.

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Komatsu Sliding Despite Ongoing Order Growth

Seeking Alpha: Komatsu Lacking A Spark

There's really not much good news to celebrate among the makers of heavy machinery for construction and mining. Joy Global (NYSE:JOY) has been pummeled over the last year, and Komatsu (OTCPK:KMTUY), Caterpillar (NYSE:CAT), Sany, Hitachi Construction (OTCPK:HTCMY), Sandvik (OTCPK:SDVKY), and Atlas Copco (OTCPK:ATLKY) all pretty much occupy the same real estate in the down 20%-30% range. In fact, most of these companies' shares have pretty closely tracked the CRB Index down over the past 12 months.

I continue to think that Komatsu is a strong company within the heavy machinery sector, but it rarely makes a lot of sense to buy the best house on the block when the entire neighborhood is in flames. To that end, it's hard to look past the ongoing declines in machine utilization in Japan, China, and North America and the grim outlook for mining capital spending. While Komatsu shares do seem undervalued based on prior valuation ranges, it's hard for me to see what drives better earnings and more investor interest in the near term.

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Komatsu Lacking A Spark