On Jun 25, we issued an updated research report on
Natural Resource Partners LP
). The coal operator's gradual expansion of oil and natural gas
operations bode well for future growth as oil and gas are riding on
a strong momentum.
The partnership's asset diversification strategies seem to have
paid off as the Sources Other than Coal segment comprised 35% of
the Natural Resource Partners' total revenue in the first quarter,
up 17% from the year-ago period. The acquisition of equity interest
in OCI Wyoming, L.P., and a soda ash refinery in the Green River
Basin could be growth catalysts for the partnership.
However, the Environmental Protection Agency's (EPA) new proposals
for slashing carbon emissions from coal-fired plants by 30% by 2030
from 2005 levels would impact coal supply to the plants. This could
weigh on the partnership's future performance. Moreover, a lower
cash distribution offering might fail to retain investors'
confidence in the stock.
This Zacks Rank #3 (Hold) stock's first-quarter 2014 results were
decent, with the top and bottom lines marginally beating the Zacks
Consensus Estimate. Lower production by lessees and a decline in
coal royalty receipts primarily affected Natural Resource Partners'
performance. On a year-over-year basis, both earnings and revenues
fell from the year-ago period.
However, good news awaits coal players like Natural Resource
Partners, as a report by World Steel Association projects steel
usage to increase by 3.1% in 2014 backed by bullish steel demand in
the U.S., China, India, Russia, Ukraine, and the Middle East and
North African regions.
The optimistic market fundamentals in the automotive, energy and
residential construction sectors will drive the steel demand, the
major production input of which is metallurgical coal.
Nevertheless, dependence on few customers might pose risks to the
partnership's prospects. Natural Resource Partners in the first
quarter derived 36% of its total revenues from its lessees, down
from 46% in the year-ago period. Any loss of these lessees will
cost the partnership dearly.
Key Picks from the Sector
Some better-ranked coal players include
Alliance Holdings GP, L.P.
Alliance Resource Partners LP
CONSOL Energy Inc.
). Alliance Holdings and Alliance Resource Partners carry a Zacks
Rank #1 (Strong Buy) while CONSOL Energy holds a Zacks Rank #2
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