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Shares of metallurgical coal producer Walter Energy, Inc. (NYSE:WLT) traded sharply lower on Friday to a new 52-week low following a outlook downgrade from Standard & Poor's.

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WLT Chart

Standard & Poor's

  • Outlook lowered to negative from stable.
  • BB- rating confirmed for now.
  • Negative outlook based on weak metallurgical coal prices.
  • Outlook could return to stable if coal prices increase.

Debt

Currently, WLT has $2.4 billion in debt and a market cap of $2.57 billion. This ratio compares favorably to other coal companies, such as Arch Coal (NYSE:ACI), Patriot Coal (PCX), and Alpha Natural Resources (NYSE:ANR). Similarly, almost all coal stocks are near 52-week lows. The move in WLT is a more a sector move than a company-specific move.

Steel Weakness

The continued weakness of the global steel business has put pressure on metallurgical coal prices. However, it is interesting to note that the major steel stocks have been doing better over the past few weeks.

X Chart

My Take

At these levels, I would not sell WLT. I think it is likely that we are somewhere close to a bottom in WLT. That being said, I would wait for some technical signs of a bottom before buying. In particular, I would look for a bullish reversal day where WLT opens sharply lower and closes higher.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Walter Energy Hits 52-Week Low, Here's What You Need To Know