cheapstockhunter

Why I'm Not Dipping Into Walter Industries

Elias. Do your homework. You cannot just pull a bunch of numbers off of morningstar and make a thoughtful investment decision, without reading the 10-K and having a true understanding of the financials.

Your analysis is totally flawed. Please read the 10-K and re-evaluate before you continue to spread your wisdom across the internet

1. Debt balance. You need to look at net debt. Secured Mortgage backed debt must be evaluated in tandem with the offsetting mortgage recievables. Mueller Water debt, which will be spun out in 2 weeks should also be properly accounted for when making an estimation of company liabilities, relative to the companies earning power

2. Relative Valuation ratios. Who created the "industry" peer group P/S and P/E ratios you are using as comps? Are they conglomerates? Homebuilders? Coal companies? If this is a coal company universe, are you comparing to conventional steam coal producers or met coal producers? Any idea which has higher margins?

3. How did you arrive at those free cash flow assumptions over the next 5 years? Did you listen to the conference call? Do you know what wall street estimates are? Most folks that follow the company expect them to earn about 250-350mm in cash flow next year. The Kodiak and Mine 7 initiatives over the next 3 years have the ability to add 25-40% increase in production. Based on next years revenue of 1.1B, 300mm in cash flow, and cap-ex estimate of 60mm (discussed on conference call) I arrive at a free cash flow / revenue yield of about 20%. Put that into your model.

4. Book value of equity. Company has a negative equity balance stemming from a transaction with KKR 5 years ago, that skews the amount of accounting book value on the balance sheet. Evaluate the real tangible assets the company relative to its debt, you will find the company has sufficient resources to cover its liabilities. Try looking at the company as an aquirer would? Do you think they care more about the number that morningstar has under "shareholder equity"? Or would they be more concerned with the real world market value and earning power of Walter's assets.

I understand your need to constantly repost this analysis as your short position continues to keep you up at night, but please do your homework before spreading your gibberish all over the internet.