Nomura Gets Bearish on Coal; Slashes Target for Walter Energy in Half (WLT)

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Coal producer Walter Energy, Inc. ( WLT ) on Friday caught some sharply bearish commentary from analysts at Nomura Securities.

The firm maintained its "Neutral" rating on WLT but cut its price target from $70 all the way down to $35. That new target suggests a 7% downside to the stock's Thursday closing price of $37.68.

A Nomura analyst commented, "We have lowered our 2013 benchmark coking coal view to $185/tone (was $220/tonne) and our 2014 forecast to $195/tonne (was $200/tonne). We expect Walter to generate EPS losses in 4Q-12 and 1Q-13 given our expectation for contract prices to remain near $170/tonne before improving in 2Q-13. We have lowered our price target to $35 (from $70), based on a forward EV/EBITDA multiple of 8.7x 2013 estimates or 6.7x 2014E EV/EBITDA. WLT has significant EPS leverage to movements in coking coal price levels, with every $10/tonne move equating to $1.35 of annual EPS impact. We see incremental ASP headwinds for WLT at mine #4 as spreads continue to stay wide relative to benchmark quality coal such as mine #7.On the positive side, production levels are running very strong, but resulted in large inventory build in 3Q."

Accordingly, Nomura also lowered its earnings estimates for the company through 2013.

Walter Energy shares fell 68 cents, or -1.8%, in premarket trading Friday.

The Bottom Line
Shares of Walter Energy ( WLT ) have a 1.33% dividend yield, based on last night's closing stock price of $37.68. The stock has technical support in the $31-$33 price area. If the shares can firm up, we see overhead resistance around the $39-$43 price levels.

Walter Energy, Inc. ( WLT ) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.0 out of 5 stars.

Be sure to visit our complete recommended list of the Best Dividend Stocks , as well as a detailed explanation of our ratings system here .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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