On Apr 18, 2013, we downgraded our recommendation on
Natural Resource Partners L.P.
) to Neutral from Outperform. The owner of mineral reserve
properties currently holds a Zacks Rank #3 (Hold).
Why the Downgrade?
The primary reason behind the downgrade is the effect of drab
coal industry performance in 2012 which will continue to act as a
deterrent in the first quarter of 2013.
Over the past two months the Zacks Consensus Estimate of the
partnership declined 0.5% to $1.72 per unit for 2013. Moreover,
the Zacks Consensus Estimate for 2013 reflects a projected fall
of 14.25% from the year-ago earnings of $2.00 per unit.
Cause of Concern
Natural Resource Partners will be affected by lower thermal
coal prices in the U.S. energy market. Moving forward, the
expiration of a lease agreement with an associate of the
partnership's major client Cline, Gatling LLC would impact
Transporation cost is an important factor which impacts price
of coal. An increase in transportation costs owing to greater
distance between the properties and the end markets would also
impact competiveness of coal produced by lessees as oppose to
ones produced from other sources.
On a positive note, an improving steel market in the
developing nations will reinvigorate the demand for metallurgical
coal. This will to some extent counter the strong aforementioned
Other Stocks to Consider
While we hold a modest outlook for Natural Resource Partners
in the upcoming quarters, the expected rise in natural gas prices
would reduce coal-to-gas substitution thereby enhancing coal
Other stocks likely to benefit from this gradual recovery are
Consol Energy Inc.
Alpha Natural Resources Inc.
Alliance Resource Partners L.P.
ALPHA NATRL RES (ANR): Free Stock Analysis
ALLIANCE RES (ARLP): Free Stock Analysis
CONSOL ENERGY (CNX): Free Stock Analysis
NATURAL RSRC LP (NRP): Free Stock Analysis
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