We reiterate our Neutral recommendation on
Natural Resource Partners L.P.
). Natural Resource Partners posted favorable top and bottom line
results in the second quarter 2012 with both figures surpassing the
Zacks Consensus Estimates.
We believe the completion of acquisition of the high performing
Deer Run mine will serve as an additional coal reserves facility
and provide the benefit of easy transportation for supplying coal
to the end users.
The partnership's sizeable metallurgical coal operations and
acquisition of oil and gas mineral acreage in the Mississippian
Lime oil play are expected to strengthen its position in the
utility market in the near future. Besides, rising demand for
metallurgical coal, both domestically as well as internationally,
particularly in the Asian markets of India, China and South Korea
will substantially benefit the partnership.
However, increasing demand for natural gas will drive down
thermal coal prices, which will result not only in lower production
but also lead to a fall in royalty revenues. In addition, stringent
government regulations and environmental policies enforced
particularly on the coal and utility industries will impact the
Other negatives include reliance on a limited group of customers
for royalty revenues and capital market risk which could limit the
partnership's growth opportunities. On a positive note, Natural
Resources' recent 1.9% hike in the quarterly distribution rate to
55 cents per unit is expected to arrest shareholders' confidence in
the near term.
Natural Resource Partners trimmed its guidance range for 2012.
The partnership expects earnings in the range of $1.65 per unit to
$1.85 per unit versus its prior expectation of $1.65 per unit to
$1.95 per unit.
Revenue is projected in the range of $340 million to $365
million in comparison to the previous forecast of $335 million to
$380 million. The narrowed guidance reflects the impact of
declining coal receipts, which will be marginally offset by higher
other coal royalty revenues.
The Zacks Consensus Estimates for the third quarter and full
year 2012 currently stand at 42 cents per unit and $1.78 per unit,
respectively. The partnership's closest peer is
Cloud Peak Energy Inc.
Natural Resource presently holds a Zacks #3 Rank which
translates into a short-term Hold rating. Based in Houston, Texas,
Natural Resource Partners L.P., through its subsidiaries, engages
in the ownership and management of coal properties in Appalachia,
the Illinois Basin, and the western United States, as well as
lignite reserves in the Gulf Coast region.
CLOUD PEAK EGY (CLD): Free Stock Analysis
NATURAL RSRC LP (NRP): Free Stock Analysis
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