On Aug 20, we upgraded the multi-fuel energy producer and
energy services provider,
CONSOL Energy Inc.
) to Neutral based on better prospects of thermal coal in the
second half of 2013 and gas extraction from the Devonian Shale.
CONSOL Energy currently has a Zacks #3 Rank (Hold).
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Why the Upgrade?
CONSOL Energy now has another natural gas play, the Devonian
Shale, in addition to the existing Marcellus and Utica plays. The
company was able to extract gas from this shale, which lies just
above the Marcellus Shale. CONSOL will find it cheaper to extract
natural gas from this shale since it is not as deep or complex as
the Marcellus or Utica play.
The deep and diversified asset base of CONSOL will enable it to
capitalize on any revival in domestic and international coal
demand. Global steel demand is expected to increase by nearly 3%
in 2013 and 2014, as per a World Steel Association report, which
will assist met coal sales of the company. Moreover, the demand
from Asian countries for thermal coal is expected to rise.
On the flip side, 96% of CONSOL's coal production come from its
underground mines. This exposes the company to significant
operational risks as underground mines are more expensive to
operate on a per-ton basis and show high levels of fixed costs.
However, CONSOL's research and development (R&D) facility
supports the development of economically viable coal and gas
assets. In addition, the R&D facility also concentrates on
energy development, improving energy efficiency and reducing
Other Stocks to Consider
Besides CONSOL Energy, other stocks in the coal sector that are
currently performing well include
Alliance Holdings GP, L.P.
Alliance Resource Partners L.P
Oxford Resource Partners, L.P
). All these companies carry a Zacks #1 Rank (Strong Buy).