NEW YORK (TheStreet) -- Walter Energy (WLT) shares are down 5.13% to $2.22 on Thursday despite beating analysts earnings and revenue estimates for the third quarter as analysts at Brean Capital published a note saying the firm is concerned about the company's spending.
The company reported an adjusted loss of $1.58 per diluted share, three cents better than analysts were expecting for the period, on revenue of $329.5 million, a 27.7% decline, that was in line with analysts expectations.
Despite the earnings results, analysts at Brean Capital believe that the company is spending at unsustainable levels.
"We are concerned that despite the positive Q3 performance, normalized cash-burn remains at high levels at current market pricing," said analyst Lucas Pipes.
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 few notable weaknesses, 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, weak operating cash flow, generally high debt management risk and generally disappointing historical performance in the stock itself."
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 338.9% when compared to the same quarter one year ago, falling from -$34.49 million to -$151.39 million.
- The gross profit margin for WALTER ENERGY INC is currently extremely low, coming in at 5.48%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -40.01% is significantly below that of the industry average.
- Net operating cash flow has significantly decreased to -$74.40 million or 1481.59% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- The debt-to-equity ratio is very high at 5.20 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 1.10, 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 84.79%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 323.63% 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.
- You can view the full analysis from the report here: WLT Ratings Report