by Justin Dove, Investment U Research
Thursday, October 13, 2011
It was just last week that David Fessler talked about the positive outlook for coal and that Walter Energy (NYSE: WLT) was one of the most likely companies to benefit.
On Thursday, rumors spread that Alabama-based Walter Energy was a takeover target of mining giants Anglo American plc (OTC: AAUKY.PK), BHP Billiton (NYSE: BHP) and possibly Vale S.A. (NYSE: VALE).
Bloomberg reported that “demand from steelmakers in China and flood-related supply disruptions in Australia have driven prices for the raw material to record highs.”
Walter Energy shares spiked in early September to just over $90 per share after the London Times reported that Anglo American was offering $120 per share – about 60 percent more than shares were trading mid-day on Thursday.
If the three companies are engaging in a bidding war, it could mean even more of a premium for Walter. The Times added that Anglo American could potentially boost its offer to $150 per share if needed – more than a 100-percent premium to the mid-day value on Thursday.
Walter Energy: A Solid Buy-Low Opportunity
Spokespeople for Anglo American and BHP declined comment to Bloomberg, but Walter would offer a solid buy-low opportunity for the mining companies.
As you can see in the graph above, Walter’s stock was hammered down to the 70s after reaching a high of $143.76 in April. The drop, much to do with macroeconomic concerns, came despite raising its second-quarter profit by $0.20 per share.
The Bottom Line for Walter Energy
At its current levels, Walter looks like a bargain for potential acquirers and investors alike. The coal industry as a whole has a positive forward outlook as outlined by David Fessler.
Even with the recent spike due to rumors, Walter itself appears cheap, with a P/E around 10 and an EPS of $7.44. Considering the 52-week high is $143.76, the stock may have plenty of room for improvement before it becomes too expensive for investors.
Good investing,
Justin Dove
Article by Investment U
