Buying Walter Industries

I bought stock in Walter Industries (WLT/NYSE) on Tuesday. The shares closed the day at $43.21.

I’ve been mulling over buying Walter Industries for some time. In fact, you might remember that when I purchased Mueller Water Products (MWA/NYSE) in July a reader commented that Walter was a better buy. I replied that I’d been looking at the company and might eventually add it.

And now I have.

Walter Industries market capitalization is more than $1.9 billion, of which over $1.2 billion is Walter’s stake in Mueller Water Products. That leaves Walter’s coal and home building businesses valued by the market at just $673 million -- ridiculously low.

Walter Industries pays a small dividend and its price-sales ratio is 0.59. The company plans on spinning off its remaining Mueller shares later this year, and may eventually spin off its home building and financing segments as well.

Walter’s traded as high as $70 back in April. The shares have fallen back to the low-to-mid $40s after hedge funds began dumping the stock when the coal business failed to perform up to expectations this year. Hedge funds are largely “fast money” outfits and I take a longer view.

The company’s coal business not performing as well as thought is a short-term negative. One causing the shares to decline and thereby giving long-term investors the opportunity to buy a fine company that’s undeniably cheap on a sum-of-the-parts basis.

If you’re a regular reader of value investing sites, you’re probably familiar with the Walter Industries story. I’ve decided to jump in and become a shareholder (I probably should have been one for a while now, but there you go). Just be sure to do your own research before doing any buying of your own.

Comments

[BL]

Is it too late to quality for the distribution of MWA to WLT holders?

WLT is a combo of coal and housing, both getting beaten up. I believe MWA and WLT have courted stub stock territory, though not as bad as the old 3com/Palm story.

[B]

Yeah, I've been watching this one too and it seems cheap.

Also, like BL, I'd like to know if we're too late for the spinoff distribution.

Thanks.

[wltmax]

WLT has a heavy debt load, so that enterprise value is $5 billion.

If we consider WLT to be a stub stock, wouldn't it be more appropriate to subtract the $1.2 billion of MWA from WLT's enterprise value, leaving $3.8 billion?

[CJ]

You believe that WLT is a undeniably cheap but it has a TTM PE of 50 and a price book of 2.5. That is not considered cheap from the perspective of a traditional Graham investor. What goes into your cheap equation?

[arendd]

Yr WLT recommendation pirated from The Motley Fool Hidden Gems letter ? - who put it on its hitlist last Thursday!!

Coincidence??

[John]

BL and B: WLT has said it plans on spinning off its remaining stake in MWA later this year. When it gives a date, I'm sure it will give the cut-off date as well.

witmax: I just use straightforward market cap in my reasoning. That I don't use EV may well be to my detrement.

CJ: I think the sum-of-the-parts makes WLT cheap. But that's just me, you make up your own mind. Keep in mind that "stated book value" may or may not reflect a company's value. It can reflect the value, or overstate it or understate it. DirecTV is another holding of mine bought at multiple times book.

arendd: If I got the WLT idea from anyone, it was Meryl Witmer recommending the company in Barron's Roundtable in January. I don't read the Motley Fool vehicle you mentioned. And, as I'm sure you know, the WLT story has been around for some time.