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Walter Energy: A Contrarian Play With Tremendous Upside Potential

How can a company with revenue of $1.4 billion have a market capitalization of $63 million? Let's take a look at the case of Walter Energy (WLT):

A Perfect Storm

Walter Energy has had a devastating 4 years. Not only has the price of their major product, metallurgical coal, collapsed from a high of $330/ton in 2011 to $117/ton where it sits now but they suffered from a failed expansion at the peak of the market. In 2010, they paid $3.3 billion for Western Coal, which added 136 million tons of metallurgical coal reserves to their portfolio. However, the reserves are much too expensive to mine in these market conditions. This means that WLT is paying the liabilities due to the acquisition but is not reaping any of the benefits.

In addition to the failed expansion and the collapse of met coal prices, WLT has been adversely affected by a… Read More …