Market Overview

Walter Energy Leads Short Interest Trend In Coal (JRCC, WLB, WLT)

Walter Energy Leads Short Interest Trend In Coal JRCC, WLB, WLT

The short interest in leading coal-related stocks largely grew between the November 15 and November 29 settlement dates, with Walter Energy (NYSE: WLT) showing the most significant percentage upswing.

The number of shares sold short in Alliance Resource Partners, Alpha Natural Resources, Cloud Peak Energy, CONSOL Energy, Peabody Energy, Rhino Resource Partners, SunCoke Energy and Yanzhou Coal Mining also increased during the period.

Alliance Holdings and Arch Coal saw little change in short interest from the previous period. However, short sellers retreated from James River Coal (NASDAQ: JRCC) and Westmoreland Coal (NASDAQ: WLB), dropping their short interest by double-digit percentages during the final weeks of the month.

Below we take a quick look at how James River Coal, Walter Energy and Westmoreland Coal have fared and what analysts expect from them.

See also: Short Interest In Solar Stocks Is Mixed

James River Coal

This Richmond, Virginia-based small cap company saw short interest dwindle more than 20 percent in the latter weeks of November to around 7.64 million shares. That was less than 22 percent of the float, but the lowest number of shares short since June. It would take more than 16 days to close out all of the short positions.

In November, James River idled four more mines, bring the total since September to seven. This miner of thermal and metallurgical coal has a market capitalization of around $53 million. Note that both its operating margin and its return on equity are in negative territory.

The consensus recommendation of the analysts surveyed by Thomson/First Call is to hold shares, and it has been for at least three months. The analysts' mean price target indicates that they feel shares could rise about 30 percent from the current share price. But shares traded higher than that as recently as September.

The share price is up about 28 percent in the past month but still down more than 37 percent from six months ago. The stock has undperformed competitors Alpha Natural Resources and Arch Coal over the past six months, as well as the S&P 500 and Dow Jones Industrial Average.

Walter Energy

This Birmingham, Alabama-based producer and exporter of metallurgical coal for the steel industry saw short interest rise about 17 percent in the period to almost 23.15 million shares. That was more than 37 percent of the float and the greatest number of shares short since August. The days to cover increased to about three.

Walter Energy is expected to report net losses for this year and the next, but rising revenue in 2014. Its market cap is around $910 million the dividend yield is near 0.3 percent. The long-term EPS growth forecast is more than 19 percent, but the return on equity and operating margin are in the red.

Though the consensus recommendation on Walter Energy is to hold shares, nine of the 23 surveyed analysts recommend buying them. The analysts' mean price target indicates that they feel shares could rise about 17 percent from the current share price. That target is much less than the 52-week high, though.

Shares have pulled back about 14 percent in the past month, but the share price is more than six percent higher than six months ago. Walter Energy has underperformed the likes of CONSOL Energy and Westmoreland Coal, as well as the S&P 500, over the past six months.

See also: Qualcomm Bucks Short Interest Trend

Westmoreland Coal

This Colorado-based energy company saw short interest retreat more than 12 percent in the latter part of the month to more than 220,000 shares. The number of shares sold short represented more than one percent of the float, and it was the lowest level of short interest in the past year. Days to cover was more than six.

A Westmoreland subsidiary set a long-term supply deal during the period. The company has a market capitalization of about $210 million. It has no long-term EPS growth forecast, and the return on equity is less than three percent, but the return on investment is about 30 percent.

At last check, only one analyst was polled. That analyst recommended buying shares and had a price target that suggests more than seven percent potential upside relative to the current share price. However, that target is less than the recent multiyear high.

Shares reached that new multiyear high this week, but the share price has pulled back more than six percent since then. The stock has outperformed not only the broader markets over the past six months, but also larger competitors Alpha Natural Resources and Arch Coal.

At the time of this writing, the author had no position in the mentioned equities.

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