Ahead Of The Bell: Walter Energy Downgraded

NEW YORK (AP) — Shares of Walter Energy Inc. have reached a fair value and already reflect bullish expectations for hard coking coal prices, said an analyst on Wednesday as he downgraded the coal producer's stock.

Shares of the company, which produces coking coal for steel manufacturers, fell $1.46 to $65.75 in premarket trading. Since the 2009 low of $15.77 in March, shares of the company have more than quadrupled to close at $67.21 on Tuesday.

FBR Capital Markets analyst Luther Lu said he maintains a price target of $74.

Lu notes that for the past months he has been highlighting that high-quality hard coking coal is a scarce resource and that Walter Energy's high-quality reserves, low cost of mining and geographic advantages make it an attractive investment. However, its share price has appreciated rapidly and market expectations of higher hard coking coal prices "have gotten ahead of reality."

Lu points out that in China, importers of hard coking coal are very price sensitive.

"Furthermore, the significant decline in the steel price in China...is due to a combination of overcapacity and lack of demand," he said.

Lu downgraded his rating for Walter Energy's shares to "Market Perform" from "Outperform."