I recently blogged about Walter Energy's (WLT) huge run up on Wednesday on speculation that the company was a takeover target. Shares of this metallurgical coal company, which closed Tuesday at $75, saw a big gain on Wednesday after this rumor came out. The stock traded as $97.30 before profit taking began. I said in my post that investors should be cautious with this stock, and that I figured it would come back to the mid to upper $80s within a few days, and it has. Today, the stock has settled in nicely in the $88 to $90 range, still up about 20% since Tuesday's close.
There is a good article from Bloomberg that details the rumor that came out. But for now, it is just that, a rumor. Remember, this stock was above $130 in July and the 52-week high is above $143. The company took a huge hit after last quarter's earnings report, falling below $70 before it started to rebound. At these levels, it would seem that the $120 price mentioned in the rumor would be appealing to another firm, just on the basis that it might have cost $160 or more just a month or two earlier. The options have certainly gotten pricier in the past week. At the money calls are trading for nearly $5.50, and they expire next Friday. Even the $110s will cost you $1.50. If you go out 3 months, the ATM calls cost you $14.50. This stock should have some moves ahead of it, but the real question is which way.
I'm not going to make any predictions on whether or not a deal is likely. I'll stick to the fundamentals. Walter is a metals and mining company that supplies the steel industry, so this business is dependent a strong global economy. It does pay a dividend, but it's more of a growth company. This is a high EPS business, so don't be shocked when you see a forward P/E of just 7.20. The stock is down from its highs on the year, but it has run up nearly 30% from its lows. This is a good company, but you need to look at it based on its growth prospects and not the chances of a takeover.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.