We reaffirm our Neutral recommendation on
Walter Energy Inc.
). The premium metallurgical coal operator currently carries a
Zacks Rank #3 (Hold).
Why the Reiteration?
Although Walter Energy managed to increase its metallurgical
coal sales volume in the first quarter of 2013, weak prices
affected the company's revenues. Effective cost management,
however, helped the company to cut its quarterly loss to 64 cents
per share from the year-earlier loss of 88 cents per share.
We expect Walter Energy's efforts to keep a check on its
operating costs to lead to margin expansion. The favorable
prediction of a 2.9% and 3.2% rise in global steel demand in 2013
and 2014, respectively, by the World Steel Association will
provide an impetus to Walter Energy's metallurgical coal business
in the future.
With increasing demand, Walter Energy would like to return its
idle mines to operation as well as ramp up production levels at
On the flip side, seaborne coal exporters from Australia will
have an edge over Walter Energy because of their nearness to the
Asian markets. Recently, Indonesia beat Australia as the world's
largest coal exporter. These countries owing to their locational
advantages will pose stiff competition to Walter Energy.
Moreover, tighter environmental regulations will continue to
pose hurdles for the company.
Other Stocks to Consider
We believe Walter Energy will need to tread cautiously given
the sluggish economic pace in the coal-hungry Chinese and Indian
However, other coal players looking good at the moment are
Zacks Ranked #2 (Buy)
Alliance Holdings GP, L.P.
Alliance Resource Partners LP
Hallador Energy Company
ALLIANCE HLDGS (AHGP): Free Stock Analysis
ALLIANCE RES (ARLP): Free Stock Analysis
HALLADOR ENERGY (HNRG): Free Stock Analysis
WALTER ENERGY (WLT): Free Stock Analysis
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