Walter Energy, Inc. (WLT) Is Worth How Much?

With around $2.6 billion in debt, it will be crucial to reach those targets. The major reason for the earnings collapse was a revenue base that shrunk $140 million while costs of sales only declined roughly $10 million. Not counting the higher depreciation and depletion total, expenses were actually flat compared to last year, a further sign of the massive leverage in the business if met coal prices were to rebound.

Comparative valuations

All three stocks are now saddled with enterprise values that are made up primarily from debt levels. Alpha Natural Resources, Inc. (NYSE:ANR) and Cliffs Natural Resources Inc (NYSE:CLF) provide better enterprise value to EBITDA ratios. While Walter Energy, Inc. (NYSE:WLT) trades at an enterprise value of over 10 times the trailing EBITDA, Alpha Natural and Cliffs trade at around 4 times EBITDA ratios. Of course, the market will be more concerned about what these companies can achieve via cost reductions as pricing is expected to remain low for an extended period.

Bottom line

While demand for steel-making commodities in China, Europe and around the globe has slowed down, part of the issue is higher supply of met coal from Mongolia and South Africa. An aggressive investor might want to look into Walter Energy, Inc. (NYSE:WLT) for another massive gain as in both the 2008 and 2011 periods. Both Alpha Natural and Cliffs provide the more conservative way of playing a rebound in the commodities needed for steel making. The world has not stopped developing, and these commodities will ultimately have value beyond the current levels.

The article Walter Energy Is Worth How Much? originally appeared on Fool.com and is written by Mark Holder.

Mark Holder and Stone Fox Capital Advisors, LLC own shares in Alpha Natural Resources. The Motley Fool has no position in any of the stocks mentioned. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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