In the past twelve months, Walter Energy, Inc. (NYSE:WLT) has experienced a significant drop of nearly 50% to around $18 per share. Taking advantage of the low share price, the company’s insiders, including its CEO, CFO, general counsel, and senior VP of project development, have spent more than $2 million to buy shares since the beginning of May. Should we follow the company’s insiders into this stock? Let’s find out.
Consistent positive cash flow but highly leveraged
Walter Energy, Inc. (NYSE:WLT) is in the business of producing and exporting metallurgical, thermal, and industrial coal, operating in the two business segments: U.S. Operations and Canadian and U.K. Operations. Most of its revenue, $1.73 billion or 72% of the total 2012 revenue, was generated from the U.S. Operations, while the Canadian and U.K. Operations contributed only $668 million in sales in 2012.
Interestingly, while the U.S. Operations generated nearly $189 million, the Canadian and U.K. Operations produced a significant loss of nearly $1.16 billion. The loss was mainly due to $990 million in goodwill impairment charges. What I like about Walter Energy, Inc. (NYSE:WLT) is its consistent cash flow generating ability. In the past ten years, the company has generated positive but fluctuating operating cash flow in the range of $106 million to $707 million. In 2012, operating cash flow stayed at $330 million.
However, investors might be discouraged by the amount of leverage used in its operations. As of March 2013, it had $946 million in equity, $236 million in cash, and around $2.7 billion in debt. The 2013 net debt/EBITDA is quite high at 6.5. The market values the company at as high as 12.9 times EV/EBITDA.
CONSOL Energy – consistently growing dividends
Compared to CONSOL Energy Inc. (NYSE:CNX), Walter Energy, Inc. (NYSE:WLT) has a bit higher forward earnings valuation. CONSOL Energy, incorporated in 1991, is the producer of goal and natural gas with a production volume of 56 million tons of high-British thermal unit bituminous coal and 156.3 net Bcfe of natural gas. In 2012, the company was estimated to have around 4 tcfe in its proved reserves. In the past ten years, CONSOL Energy Inc. (NYSE:CNX) has consistently increased dividends, from $0.28 per share in 2003 to $0.63 per share in 2012. At the end of April, the company decided to pay regular quarterly dividend.
CONSOL Energy is trading at around $34 per share with a total market cap of $7.8 billion. The market values CONSOL Energy quite expensively at nearly 13 times EV/EBITDA. At this current trading price, CONSOL Energy Inc. (NYSE:CNX) offers shareholders a 1.40% dividend yield.
Alpha Natural Resources has been reducing operating costs
Another coal player, Alpha Natural Resources, Inc. (NYSE:ANR) has the lowest valuation among the three companies. At $7.10 per share, Alpha Natural Resources is worth nearly $1.6 billion. The market values the company quite cheaply, at only 4.3 times EV/EBITDA.