Analysts Fight Over Coal Stocks: Low Downside, High Upside

March 8, 2014 by Jon C. Ogg

coal train
Source: Thinkstock
Friday brought about a big drop in the coal miners. Alpha Natural Resources Inc. (NYSE: ANR) tanked after Goldman Sachs downgraded the coal player from an already cautious Neutral rating down to a Sell rating. Its price target was also slashed to $4 from $6 in the call. Another coal mining stock that fell was Arch Coal Inc. (NYSE: ACI), yet it was not really the focus of the call.

So, the title of the story is a “Bull and Bear,” and the bull side of this is from Sterne Agee. Both Arch Coal and Alpha Natural Resources have Buy ratings at the firm.

Goldman Sachs cut its metallurgical coal price projection to $141 per metric ton in 2014, down from $150 previously. The downgrade also forecasts lower coal prices in 2015 and 2016 as well — on the heels of higher output in Australian output and slowing growth of Chinese imports. The firm’s other issue is limited supply rationalization in the United States. All of which are the basis for the downgrade in Alpha Natural resources.

Sterne Agee’s Michael Dudas and Satyadeep Jain do not agree — or actually they think this is all priced into a battered coal sector. This team recommended late on Friday that investors add to positions on this pullback. They said”

Regarding coal, the positive impact of improved US coal burn, reduced utility stockpiles and a higher natural gas price deck at times has been offset by continued negative sentiment surrounding global met coal dynamics. While a return to more normalized pricing environment will require producer discipline whose evidence remains shallow, we believe current coking coal prices suggest an output adjustment during 2014. We find the decline in Alpha’s valuation overdone and would add to positions. We rate ACI, ANR, BTU, CNX as Buys.

Arch Coal shares are still higher than the point where they were when we said the shares could double in 2014. This is still possible, but the risks have not changed either.

Alpha Natural Resources was down 11% at $4.87 and Arch Coal was down 4.5% at $4.46 right before the closing bell on Friday.

Take This Retirement Quiz To Get Matched With A Financial Advisor (Sponsored)

Take the quiz below to get matched with a financial advisor today.

Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests.

Here’s how it works:
1. Answer SmartAsset advisor match quiz
2. Review your pre-screened matches at your leisure. Check out the
advisors’ profiles.
3. Speak with advisors at no cost to you. Have an introductory call on the phone or introduction in person and choose whom to work with in the future

Take the retirement quiz right here.

Posted in Commodities & Metals | Comments Off on Analysts Fight Over Coal Stocks: Low Downside, High Upside