Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis includes Alpha Natural Resources (NYSE: ANR), Arch Coal (NYSE: ACI), Massey Energy Company (NYSE: MEE), Natural Resource Partners (NYSE: NRP) and Peabody Energy (NYSE: BTU). To see the Zacks Industry Rank and the trend in earnings estimates revisions for more than 200 industry groups, visit http://at.zacks.com/?id=3154.
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
The sharp rise in oil, the rally in corn and wheat and the high cost of metals (a nickel is now worth approximately 7.5 cents) have overshadowed another commodity that also continues to appreciate - coal. Coal futures are currently trading at $104, compared to $58 at the start of the year.
As one would assume, the impact of this appreciation, as one might assume, was highly noticeable in the earnings from coal companies. Alpha Natural Resources (NYSE: ANR) said last week that it "achieved the highest quarterly price realization in its history due to rising metallurgical coal exports and price levels".
ANR's first-quarter sales totaled $445.7 million, an increase of 17% from a year prior. The amount of coal tonnage sold rose just 6.9%, however, signifying the impact that higher prices had on revenue growth. Earnings per share reached 39 cents, compared to 13 cents a year ago. (Brokerage analysts had been expecting first-quarter profits of 17 cents per share.)
ANR is not the only company to benefit. Arch Coal (NYSE: ACI), Massey Energy Company (NYSE: MEE), Natural Resource Partners (NYSE: NRP) and Peabody Energy (NYSE: BTU) all realized higher revenues and profits last quarter.
There are several reasons why coal is rising. The overall rally in commodity prices is providing upward momentum. Economic growth in China and India has increased worldwide demand. Higher natural gas prices are keeping coal an economically viable alternative for power. Even the production of steel is playing a role.
Brokerage analysts have significantly raised full-year earnings estimates on all five companies. The magnitude of the revisions suggests a reassessment of the price coal will command throughout the remainder of the year. As is the case with oil, brokerage analysts are realizing that their previous projections were too conservative.
Forecasts for 2009 are also rising. This is important, because it implies that valuations for all four stocks remain within reason despite the sizable returns they have generated for investors this year.
ANR and MEE are Zacks #1 Rank ("strong buy") stocks. ACI, BTU and NRP are Zacks #2 Rank ("buy") stocks. All five companies are classified in Coal (http://at.zacks.com/?id=4571).
About Zacks Industry Rank and the Zacks Rank
Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 (“Strong Buy”) to #5 (“Strong Sell”). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.
Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +32%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 129% annually (+5 % vs. +12%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
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