Why Walter Energy (WLT) Is Up Today

NEW YORK (TheStreet) -- Walter Energy (WLT) was gaining 1.8% to $11.26 Thursday after the company posted a smaller-than-expected loss for the fourth quarter.

Walter Energy posted a loss of 55 cents a share. That's much smaller than analyst estimates of a loss of 81 cents a share. Revenue fell 3.3% from the year-ago period to $463 million, compared to analyst estimates of $475.4 million.

The company's net coal sales volume for the quarter totaled 2.9 million metric tons (MMTs) for the quarter, a 13.8% increase from the year-ago period. Hard coking coal sales volume was 2.5 MMTs, a 15.4% increase compared to 2012.

Walter Energy's net average cash cost of production was $68.02 per MT in the quarter, which was down 28.1% from the year-ago quarter.

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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.
  • 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.
  • 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 70.53%, 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 company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Metals & Mining industry average, but is greater than that of the S&P 500. The net income increased by 90.5% when compared to the same quarter one year prior, rising from -$1,061.96 million to -$100.72 million.

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