We have downgraded our recommendation on
Penn Virginia Resource Partners L.P.
) to Underperform from Neutral owing to a decline in coal
production, lower commodity prices and higher rate of transition to
emission-free resources from coal.
We have also considered Penn Virginia's lower-than-expected
second-quarter 2012 top- and bottom-line performance in our
recommendation change. This was due to lower natural gas liquid
("NGLs") prices and coal royalties, weak coal market condition,
decline in fee-based contracts in the Midcontinent business and a
slowdown in natural gas business.
In addition, Penn Virginia's over-dependence on a limited group of
customers for its natural gas midstream and coal royalty revenue is
a major threat for its future financial performance. If any of
these customers become insolvent or fail to make payment on time,
the partnership's revenues and profits will significantly be
Apart from facing threats from customers, Penn Virginia is also
witnessing challenges from its third-party service providers in
terms of receiving and supplying of gas and NGLs. Sometimes,
capacities of the interconnecting pipelines get affected due to
pipeline testing and repairing, and reduction in operating
pressures. This factor could adversely affect the partnership's
revenues and cash flows.
However, we have identified few prospective silver-linings under
the strong downbeats, which might mitigate these negatives. These
positives include Penn Virginia's steady acquisition and organic
growth strategy and quarterly distribution hike at regular
Penn Virginia narrowed its full-year 2012 and 2013 earnings before
interest, tax, depreciation and amortization ("EBITDA") guidance.
In 2012, the partnership expects EBITDA to be in the range of
$245-$260 million, down from the earlier expected band of $260-$280
million. Similarly, 2013 EBITDA guidance is lowered to $415-$480
million from $450-$540 million.
As per the Zacks Consensus Estimates, Penn Virginia's earnings for
the third-quarter and full-year 2012 are currently pegged at 9
cents per unit and 53 cents per unit, respectively.
Penn Virginia Resource Partners L.P. currently retains a Zacks #4
Rank, which translates into a short-term Sell rating.
Radnor, Pennsylvania-based Penn Virginia Resource Partners, L.P. is
engaged in the management of coal and natural resource properties
and gathering and processing of natural gas in the U.S. The
partnership competes with
CONSOL Energy Inc.
CONSOL ENERGY (CNX): Free Stock Analysis Report
PENN VA RESRC (PVR): Free Stock Analysis Report
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