NEW YORK (TheStreet) -- Walter Energy (WLT) shares are down -3.6% to $7.62 in pre-market trading on Monday.
The fall follows the coal producer stock being downgraded to "sell" from "neutral" by analysts and Goldman Sachs (GS - Get Report). The firm cut its price target for the company to $5 from $9.
The firm cites a pessimistic met coal pricing outlook leading to below consensus EBITDA estimates a reason for the downgraded outlook.
"We forecast WLT will burn 39% of its current market cap in free cash flow in 2014, given only $78 mn in EBITDA, but $140 mn in capex and $260 mn in interest. We see the possibility for WLT to issue a convertible bond later this year, consistent with peers, to provide additional liquidity, but believe that it could potentially significantly dilute equity holders." said analysts.
Separately, 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 some concerns, 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 unimpressive growth in net income, poor profit margins, 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 company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 145.7% when compared to the same quarter one year ago, falling from -$70.97 million to -$174.34 million.
- The gross profit margin for WALTER ENERGY INC is rather low; currently it is at 17.54%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, WLT's net profit margin of -36.93% significantly underperformed when compared to the industry average.
- The debt-to-equity ratio is very high at 3.69 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 1.13, demonstrating the ability to handle short-term liquidity needs.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 61.05%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 146.90% compared to the year-earlier 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 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