We reiterate our Neutral recommendation on
Walter Energy Inc.
). Despite registering year-over-year growth in volumes and sales,
Walter Energy put up an uninspiring show in the first quarter of
2012. Earnings slipped to 65 cents per share versus $1.53 reported
in the year-ago quarter and fell below the Zacks Consensus Estimate
of 79 cents per share. Despite the weak profits, Walter Energy is
focused on investments in growth projects that would help optimize
returns in the future. For example, its overseas project at the
Aberpergwm mine in Wales looks promising.
However, the mining of coal reduces the volume of the coal
reserves. In the event of a failure to back up its reserves on a
continuous basis, the company's financials could well suffer.
Besides, the company generates a substantial part of its revenue
from long-term contracts with a limited group of customers. Failure
to renew or obtain new long-term coal supply contracts could pose
serious threats to its income growth.
Other negatives that might keep a leash on the company's growth
include rise in prices of input materials and unforeseen
interruptions or lag in the production process. Walter Energy
expects its total coal production in 2012 to be in the band of 11.5
million metric tons(MMTs) and 13 MMTs. Out of the total production
75% to 80% will be Hard Coking Coal and the balance will be the
Pulverized Coal Injection coal.
The company is one of the largest producers of premium
metallurgical coal in the world. With the expected revival of the
global steel industry, Walter Energy should generate favorable
returns with its hardened focus on enhancing metallurgical coal
production. Moreover, it strives to work towards maintaining a
healthy balance sheet with a flexible liquidity portfolio which
will enable the company to favorably execute its growth related
The Zacks Consensus Estimates for the second quarter and fiscal
2012 are currently pegged at 87 cents per share and $4.43 per
The company presently retains a Zacks #3 Rank which translates
to short-term Hold rating. Its business competitors are
Alpha Natural Resources Inc.
Arch Coal Inc.
Based in Birmingham Alabama, the company is engaged in the
production and export of metallurgical coal for the steel industry.
The company also produces thermal and industrial coal, anthracite,
metallurgical coke, coal bed methane gas, and other related
products. It principally serves electric utility and industrial
ARCH COAL INC (ACI): Free Stock Analysis Report
ALPHA NATRL RES (ANR): Free Stock Analysis
WALTER ENERGY (WLT): Free Stock Analysis Report
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