Walter Energy Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: It seems like everything is down today, but Walter Energy (NYS: WLT) is down more than most -- 25% and counting. Yowza.

So what: Second-quarter "adjusted" earnings came in at $2.36 per share last night -- well over 40% short of the estimated $3.98-per-share profit. To top it all off, Wall Street investment bankers Brean Murray and KeyBanc both downgraded Walter to "hold" this morning. Ouch.

Now what: Personally, I think the panic's a bit overdone. Maybe Walter missed estimates, but so what? It still generated enough cash profit that, post-sell-off, its price-to-free cash flow ratio is sitting just under 16. This for a company that's put together five years of average 15% annual growth, and which many analysts believe will keep growing in the double digits for the next five years. If Wall Street is selling this one, I want to be on the other side of the trade.

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At the time this article was published Fool contributorRich Smithdoes not own (or short) shares of Walter Energy. The Motley Fool has adisclosure policy. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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