We reiterate our Neutral recommendation on
Walter Energy Inc.
). The premium metallurgical (met) coal export company currently
has a Zacks Rank #3 (Hold).
Why the Reiteration?
Walter Energy is expected to gain from the rise in metallurgical
coal exports on the back of thriving steel markets worldwide. The
growing infrastructure activities in India, China and Brazil will
primarily lead to the increase in demand for met coal. World
Steel Association projects 3.2% year-over-year growth in world
steel production in 2013.
In addition, the company's strategic location near the
Atlantic as well as South Pacific allows it to easily tap the
profitable Latin and European markets.
Going forward, Walter Energy's cost-containment efforts were
successful with the company recording significant decline in its
cash cost of production in the fourth quarter 2012. Further, the
planned production cuts at several of its low-return coal mines
will aid in controlling costs.
However, stiff competition from met coal producers in Australia
and Canada might act as a deterrent to growth. Moreover, the
continued weakness in the thermal market would prove to be a drag
on Walter Energy's business.
The company's first quarter preliminary results look modest with
met coal sales increasing 9% sequentially to 2.8 million metric
tons. On the other hand, the downturn in thermal coal persisted
with sales dropping 40% sequentially to 380,000 metric tons.
Other Stocks to Consider
Other stocks in the energy space performing well are
Atmos Energy Corporation
The Laclede Group, Inc.
). All the above three stocks hold a Zacks Rank #2 (Buy).
ATMOS ENERGY CP (ATO): Free Stock Analysis
LACLEDE GRP INC (LG): Free Stock Analysis
VECTREN CORP (VVC): Free Stock Analysis
WALTER ENERGY (WLT): Free Stock Analysis
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