Zacks.com releases the latest Analyst Interview. Today’s interview is with senior analyst Matthew Thurmond, who discusses Arch Coal (NYSE: ACI), Peabody (NYSE: BTU), Consol (NYSE: CNX) and Natural Resource Partners (NYSE: NRP).
A synopsis of today’s Analyst Interview is presented below. The full article can be read at http://at.zacks.com/?id=2678.
How have your coal miners handled the oversupply thus far?
They have been able to dodge near-term price volatility because they sign long-term contracts with utilities. The major coal miners I cover are Arch (NYSE: ACI), Peabody (NYSE: BTU) and Consol (NYSE: CNX). They were all able to report fairly stable pricing during the fourth quarter. However, due to the recent over-supply, every one of them has decided to scale back 2007 production plans.
Arch dropped its guidance from 140 million tons to just over 130 million, and Consol is refusing to increase production unless the market clearly demands it. Peabody, the world’s largest coal miner, is putting off its massive “School Creek” mine build-out until at least 2009. So overall, my coverage base is able to keep pricing and margins stable by curbing their production levels.
Any tips for investors on how to profit from the coal sector going forward?
I would say sit back and wait for better prices. If the economy turns sour and we happen to have a mild summer in the midst of it, it would probably be a good time to snap up a coal miner like Peabody. Right now, however, I only have one Buy rating on the six coal-focused companies in my coverage universe. This company, Natural Resource Partners (NYSE: NRP), has fairly good dividend growth prospects and trades at a reasonable valuation. It is an MLP, however, and investors need to consider their tax situation before investing.
As for the rest of my companies, the coal miners especially, I think they are fully priced. Companies like Arch and Peabody seem to be getting a premium for potential coal-to-liquids and coal gasification technology. While this could be a huge tailwind for the firms, I don’t see it being a serious contributor anytime soon. Further, coal mining is a tough, fairly low-return commodity business. Pricing is difficult to predict, it is capital intensive, and oversupply by marginal producers is a constant worry. So to sum it up, wait for better prices to snap up the country’s major coal miners. If you are looking for a 5-6% yield and agree that coal has a strong long-term outlook, consider Natural Resource Partners.
Read the full interview at http://at.zacks.com/?id=2647.
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