American International Group, Inc. (NYSE: AIG) Started as Buy at BofA/ML.
Black Hills Corporation (NYSE: BKH) Raised to Outperform but cut target to $33 at Credit Suisse.
Boston Properties Inc. (NYSE: BXP) Raised to Buy at Argus.
CIGNA Corporation (NYSE: CI) Raised to Outperform as Bull of the Day at Zacks.
CME Group Inc. (NYSE: CME) Raised to Buy at UBS.
FuelCell Energy Inc. (NASDAQ: FCEL) Maintained Buy but cut target to $3.00 at Canaccord Genuity.
James River Coal Co. (NASDAQ: JRCC) Cut to Strong Sell at S&P Equity Research (late-Thursday).
LDK Solar Co., Ltd. (NYSE: LDK) Reiterated Hold at Argus.
Maidenform Brands, Inc. (NYSE: MFB) Reiterated Strong Buy as Value at Zacks.
MEMC Electronic Materials Inc. (NYSE: WFR) Cut to Hold at Stifel Nicolaus.
Micron Technology Inc. (NYSE: MU) Raised to Outperform at Wells Fargo; Reiterated Buy and $14 target at Gleacher & Co.
Oracle Corporation (NASDAQ: ORCL) Reiterated Outperform as #1 pick with $42 target at Credit Suisse.
SciQuest, Inc. (NASDAQ: SQI) Started as Buy at Canaccord Genuity.
SodaStream International Ltd. (NASDAQ: SODA) Reiterated Buy as Aggressive Growth at Zacks.
StanCorp Financial (NYSE: SFG) Reiterated Underperform as Bear of the Day at Zacks.
Under Armour, Inc. (NYSE: UA) Raised to Buy at Stifel Nicolaus.
Zale Corporation (NYSE: ZLC) Cut to Neutral at BofA/ML.
Zipcar, Inc. (NASDAQ: ZIP) Raised to Overweight at JPMorgan.

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JON C. OGG

The US coal sector has experienced its share of ups and downs recently, as the global economy fitfully recovers from the recent recession. In this article, we review how US coal company shares are doing and what may lie ahead for the rest of 2010. Companies in this review include Arch Coal, Inc. (NYSE: ACI), Alpha Natural Resources (NYSE: ANR), Black Hills (NYSE: BKH), Consol Energy (NYSE: CNX), James River Coal (NASDAQ: JRCC), Massey Energy (NYSE: MEE), and Peabody Energy (NYSE: BTU). We’ll also look at the Market Vectors Coal ETF (NYSE: KOL) and a few of its components that aren’t included among the other companies we’re reviewing.  Mine Safety Appliances Co. (NYSE: MSA) even has some skin in the game.

Massey Energy shares have dropped nearly 16% in the two days since the explosion at its West Virginia mine. It’s 52-week trading range is $10.58-$54.80, and it’s trading has stabilized today at right around $46/share. The stock’s 200-day moving average is up about 15.5%, not including today’s drop of more than $2/share so far. Massey’s market cap is about $4.4 billion.

Massey had a lackluster 2009 fourth quarter, but the full-year results were better than 2008. The company projected flat shipments for 2010 but at slightly higher prices than previously estimated. Shipments in 2011 are expected to be about 8% better than 2010 and the average price per ton is also expected to rise. JP Morgan dropped its rating from ‘Overweight’ to ‘Neutral’ in early February, joining most other analysts’ ratings.

Following the disaster in West Virginia, Massey may not even be able to hold on to middling ratings. In its 2009 Form 10-K, the company noted that it does not carry business interruption insurance for the about 1.5 million tons of coal it will not be producing.

Arch Coal shares have jumped about 13% since the beginning of the year. The stock’s 52-week trading range is $12.52-$28.34, and its 200 day moving average is up more than 10%. Arch’s market cap is about $4.14 billion. The company’s shares are up today as traders expect Arch to get a share of Massey’s lost production.

Arch’s fourth quarter 2009 were much like Massey’s, with revenues off slightly and fully diluted EPS also down after excluding one-time items. For 2009, revenues were down more than $400 million and EPS down 89%. The company was looking ahead to economic recovery in 2010 and offered guidance on GAAP EPS in the range of $0.37-$0.86. Following the earnings release, two analysts raised ratings and two lowered them. Sounds about right.

Alpha Natural Resources, with a market cap of $6.52 billion, has been trading in a 52-week range of $15.95-$55.70. The wide span is mostly the result of the closing of its acquisition of Foundation Coal in July 2009. The shares set the 52-week high yesterday, again as a result of the explosion at the Massey mine. The 200-day moving average on the stock is up a bit more than 26%.

Alpha’s fourth quarter and full-year 2009 results were the best in the sector, and its outlook for 2010 was positive both for shipments of thermal and metallurgical coal. Goldman Sachs has Alpha listed on its ‘Conviction Buy List’, and that is probably where it deserves to be.

Peabody Energy is the largest of the US coal miners, with a market cap of $12.67 billion. It’s 52-week trading range is $23.56-$52.14 and the stock’s 200-day moving average is up 6.13%. Shares are trading up more than 2% today, due both to the Massey mine explosion and to the rejection of Peabody’s $3.3 billion bid for Australian coal miner Macarthur.

Fourth quarter 2009 revenues were off about 6.8% sequentially and nearly 18% from the same period in 2008. Shipments were down about 4% sequentially and 11.7% year-over-year. Peabody expects its Australian operations to ship 26-28 million tons of coal to Asian markets this year, up from 23.3 million tons in 2009. Prices are also expected to increase beginning the second quarter of 2010, when annual contracts come up for renewal. Peabody’s ratings lean toward the buy side, and that’s as it should be given its position in Australia.

Consol Energy is the second largest coal company in the US with a market cap of $10.03 billion. The company’s 52-week trading range is $24.01-$58, and its 200-day moving average is down 5.59%. Shares are down more than 1% today, not on any particular news, just general ennui about the company.

Consol issued more than 44 million new shares last week to help fund its acquisition of the Appalachian oil and gas assets of Dominion Resources (NYSE: D), which it will buy for $3.475 billion. The company also fell victim to a lawsuit by shareholders disgruntled at its $363 million offer to buy the assets of CNX Gas Corp. (NYSE: CXG) that Consol does not already own. The suit alleges that the price is too low. Consol has also issued two new debt offerings totalling $2.75 billion at 8% and 8.25% interest. New debt, a shareholder suit, and a share dilution keep the shares tamped down some.

KOL, the Market Vectors Coal ETF, has been trading in a 52-week range of $14.77-$41.55. It’s 200-day moving average is up 13.9%, and shares are trading down slightly today at around $39. The fund’s return on net asset value since the beginning of the year is 4.4%.

Three Chinese coal companies account for about 20% of KOL’s assets. China Coal Energy, China Shenhua Energy, and Yanzhou Coal Mining (YZC) make up 7.73%, 7.67%, and 4.87% respectively of the fund. The largest single holding is Alpha Natural Resources, at 8.28%. Massey Energy is not among the fund’s top 10 holdings.

Mine Safety Appliances Co. (NYSE: MSA) makes health and safety products such as gas masks and detection systems. The company’s 52-week trading range is $21.08-$29.60, and it is currently trading up less than 1% on the day, at $28.66. Shares gained about 5% on yesterday’s opening, but have since given most of that back.  This may have been a ‘mining safety’ play before but it is diversified now.

The last mining disaster in the US occurred in 2007 at a coal mine in Utah that killed six miners and three rescue workers. Since 2000, 39 Americans have died in US mines. That is too many, to be sure, but in the same period a staggering total of 51,266 Chinese have been killed in coal mines. In many ways, the cost of coal is always too high.

PAUL AUSICK

Black Hills lowered its guidance and outlook in September as well. EPShad been charted at $2.43 for 2008 and $2.69 for 2009. And that wasbefore the credit market collapse was fully appreciated.

The company generally blamed low natural gas and crude oil prices,financial sector weakness, and generally lousy economic conditions.Back in September, Black Hills has also been trying to convert a $383million short-term credit facility that expires in February 2009 to along-term loan. In its announcement last night, the company said it wasworking to "extend" the loan and that it expects "to obtain thefinancing we need." Right, but on what terms?

And the bad news just keeps on coming. Black Hills got whipsawed by itspurchase of $250 million in interest rate swaps. The company revealedthat the long-term financing it anticipated is "no longer probable."The mark-to-market value of the swaps as of November 21st is -$69.5million pre-tax. That amounts to a charge against after tax earningsfor the full 2008 year of $1.17/share. It’s no wonder Black Hills savedthis announcement til 9 p.m. last night.

The company is holding a conference call this morning at 11 a.m. ET totry to explain all this to investors and analysts. What can it say?We screwed up. We borrowed short to make an acquisition when thingswere good–how were we to know that things would go bad so quickly andwe wouldn’t be able to borrow long to finance the acquisition?

Every energy company is facing the same difficulties as Black Hills. The value of a company’s assets is simply unknown.What is known is that those values are dropping every day as the globaleconomy worsens. No matter how valuable a company’s assets are, ifthere is no way to finance growth, asset values will decline. Thesedays, not losing value is the new growth. And even that’s damned hardto do.

Black Hills’s share price closed up about 2% yesterday, at $24.99 andwithin range of its 52-week low of $23.84. The stock should have notrouble setting a new low today.

Paul Ausick
November 25, 2008