UPDATE: Citigroup Downgrades Walter Energy on Lowered 2014 EBITDA Estimate

In a report published Monday, Citigroup analyst Brian Yu downgraded the rating on Walter Energy (NYSE: WLT) from Buy to Neutral, and lowered the price target from $20.00 to $19.00.

In the report, Citigroup noted, “Spot benchmark hard coking coal (HCC) prices have dropped down to $141/tonne (Australia) vs the 4Q13 settlement of $152/tonne and the 3Q13 settlement of $145/tonne, contrary to the steady rise we previously expected. While we have lowered our 1Q14 settlement expectation to $155/tonne from $160/tonne, there could be further downside risk unless we see further supply reductions, whether it be curtailments on the part of high-cost US producers (ANR, ACI and smaller miners) or unanticipated supply disruptions (Australia weather driven). As a result, we are lowering our 2014 EBITDA estimate to $361 mln. Because of WLT's more levered balance sheet, we expect the company to trade at a lower EV/EBITDA than met-levered peers such as ANR, and at 10x 2014 EV/EBITDA, our target drops to $19/sh for an ETR of $12.5%, downgrading to Neutral/High Risk.”

Walter Energy closed on Friday at $16.93.