On Nov 20, we maintained our Neutral recommendation on the
multi-fuel energy producer and energy services provider,
CONSOL Energy Inc.
). CONSOL Energy currently has a Zacks Rank #3 (Hold).
Why the Reiteration?
CONSOL Energy's earnings per share in the third quarter were
lower than our expectation, while the top line was marginally
CONSOL is presently more focused on natural gas production and
has started to shed its coal assets. At the beginning of the
year, the company sold some of its coal assets in Canada and
recently decided to shed more coal assets for a total value of
$3.5 billion. All the sales proceeds will be directed to enhance
the gas operation of the company.
CONSOL Energy depends on a small group of customers for its bulk
coal sales. In the previous year, 35% of the total revenue of the
company was generated from four customers. Customer concentration
runs its own risk as any failure to renew or get into fresh
long-term contracts will adversely affect the operational health
of the company.
Even after downsizing its coal assets the company still retains a
few low-cost, high-quality coal mines. The company is likely to
utilize these assets on any rebound in coal demand either in the
U.S. or in international markets.
On the flip side, a significant portion of CONSOL's coal
production come from its underground mines. This exposes the
company to operational risks as underground mines are more
expensive to operate on a per-ton basis and show high levels of
Other Stocks to Consider
Stocks in the coal sector that are currently performing well
Alpha Natural Resources, Inc.
Suncoke Energy Partners, L.P.
BHP Billiton Limited
). All these companies carry a Zacks #2 Rank (Buy).
ALPHA NATRL RES (ANR): Free Stock Analysis
BHP BILLITN LTD (BHP): Free Stock Analysis
CONSOL ENERGY (CNX): Free Stock Analysis
SUNCOKE ENERGY (SXCP): Free Stock Analysis
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