The firm lowered its valuation range for the energy company to between $10 and $13 from a previous range of $18 to $20.
Analyst Sam Dubinksy wrote, "We originally were expecting met coal pricing to recover in tandem with Chinese steel production in 2013. This did not occur (China grew output over 8%, but pricing fell due to supply additions at low cost miners and FX) and with China potentially slowing again due to tightening credit, we believe pricing will remain a challenge in 2014. Given Walter's high debt loads and earnings likely to remain very weak, we are more cautious on shares."
Wells Fargo lowered its 2014 EPS for Walter Energy to a net loss of $2.56 a share from $1.03 a share.
TheStreet Ratings team rates WALTER ENERGY INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate WALTER ENERGY INC (WLT) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its poor profit margins, weak operating cash flow, generally disappointing historical performance in the stock itself and generally high debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The gross profit margin for WALTER ENERGY INC is currently extremely low, coming in at 10.04%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -22.09% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$19.92 million or 181.50% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- WLT's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 62.08%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- The debt-to-equity ratio is very high at 3.36 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Even though the debt-to-equity ratio is weak, WLT's quick ratio is somewhat strong at 1.18, demonstrating the ability to handle short-term liquidity needs.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, WALTER ENERGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: WLT Ratings Report