We reaffirm our Neutral recommendation on Pennsylvania-based
CONSOL Energy Inc.
). The multi-fuel energy company reported dull financial
results in the third quarter 2012 with top-and bottom-line
trailing the Zacks Consensus Estimates.
The sluggish global steel market conditions are expected to
prevail in the near term. This prompted CONSOL to temporary halt
production at its Buchanan and Amonate mines. However,
weather-induced demand for electricity during the winter months
will lend stability to the company's earnings in the coming
quarters with a gradual decline in coal stockpiles.
Like the recent shutdown of the Miller Creek surface unit,
pressure from regulatory bodies would continue to constrict the
company's margins. However, CONSOL Energy's low-cost coal
operations in the northern Appalachian basin will provide
downward support to its earnings.
Meanwhile CONSOL Energy generated $224 million from asset sale
which would aid the company to achieve its growth goals. Also,
the company is focusing on the development of its natural gas
assets owing to increasing coal-to-gas switching in the U.S.
which will bode well for CONSOL Energy's future business
Nevertheless, unexpected mine accidents, maintenance outages
and commodity price volatilities are periodic risks that could
CONSOL Energy estimates coal sales to be around 55.9 million
tons for 2012. For 2013 and 2014, the company expects coal
production to be 56.7 million tons and 61.8 million tons,
respectively. In the fourth quarter 2012, CONSOL Energy
anticipates coal sales to be 14.0 million tons.
Gas production for 2012 is expected in the band of 157-159
billion cubic feet (Bcf). For the fourth quarter, gas production
is projected to be roughly in the range of 42.5-44.5 Bcf. The
Zacks Consensus Estimates for the fourth quarter and full year
2012 presently stand at 22 cents and 92 cents per share,
The challenging coal market outlook is reflected on both
CONSOL Energy's and its rival
Peabody Energy Corp
) stocks which share a short-term Zacks#3 Rank (Hold rating).
Headquartered in Canonsburg, Pennsylvania, CONSOL Energy
produces coal and natural gas for energy and raw material
markets. The company is engaged in the mining, preparation, and
marketing of steam coal primarily to electric power generation
industry; and metallurgical coal to steel and coke producers.
PEABODY ENERGY (BTU): Free Stock Analysis
CONSOL ENERGY (CNX): Free Stock Analysis
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