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WLT is a producer and exporter of metallurgical coals, and this morning Bank of America/Merrill Lynch (NYSE: BAC) slashed price targets on key coal stocks, including Walter Energy.
Merrill said that its lower estimates reflect industry oversupply, falling marginal costs, growing substitutes, reluctance among miners to shut capacity giving high barriers to exit, and other sagging fundamentals.
"Our new 2014E benchmark hard coking coal (HCC) price forecast falls to $132/mt from $153 and 2015E to $145/mt from $160, below estimated consensus of $154/t for 2014E and $159/t for 2015E," the firm stated. "Absent a weather-induced shortfall or significant capacity cuts, we expect benchmark HCC to range from $130-150/mt over the next several years based on an estimated marginal cost of production of $140/mt."
Merrill maintained Walter Energy as "Underperform," but cut the price target from $8 to $2 per share. It raised loss estimates for fiscal 2014 and 2015 – WLT is now projected to lose $6.30 per share in 2014 (versus $3.30 prior) and $4.25 per share in 2015 (versus $2.15 prior).
"Walter could face a mounting liquidity problem over the next 12 to 24 months on our price deck," the firm said, according to 24/7 Wall St.
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WLT shares moved on heavy volume in pre-market hours this morning on the news. According to market intelligence firm Trade-Ideas LLC, Walter Energy has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $65.5 million. Today, WLT traded nearly 10 million shares in the pre-market hours, representing 11.1% of its average daily volume.
Also worth noting is that Merrill's move to slash price targets on key coal stocks also hit Alpha Natural Resources Inc. (NYSE: ANR) – a "stock market crasher" we wrote about on March 7.
On that day, Alpha Natural – the second-largest U.S. coal producer – agreed to pay a $27.5 million fine and spend around $200 million to implement wastewater treatment systems in a settlement with the U.S. government over toxic discharges from its mines across five states. As a result, its stock fell 12.41% that day.
Today, ANR stock is down 3.37% to $4.30 per share so far on the news from Merrill and other coal industry-related woes.
- 24/7 Wall St.:
Merrill Lynch Gets Nasty Toward Coal Stocks