Coal Stocks Get a Dose of Reality (ANR, BTU, WLT, ACI, JRCC, CNX, CLD, KOL)

As natural gas prices rise along with a forecast for a colder winter in the U.S., U.S. coal stocks have benefited from a burst of enthusiasm since early October. Share prices have jumped as much as 35% since October 3rd.

Today, though, reality weighted in, and shares have dropped sharply following some downgrades and target price cuts from Nomura. Alpha Natural Resources (NYSE: ANR), Peabody Energy Corp. (NYSE: BTU), and Walter Energy Inc. (NYSE: WLT) got the bad news directly, and Arch Coal Inc. (NYSE: ACI), Consol Energy Inc. (NYSE: CNX), James River Coal Co. (NASDAQ: JRCC), and Cloud Peak Energy Corp. (NYSE: CLD) got caught in the wake.

The Nomura analysts dropped Alpha from a ‘buy’ rating to ‘neutral’ and lowered the target price from $11.00 to $8.00 according to a report at streetinsider.com. Peabody’s rating was lowered from ‘neutral’ to ‘reduce’ and the target price was dropped from $25.00 to $22.00. Walter Energy fared a little better. It’s rating was maintained at ‘neutral’, but the target price was slashed from $70.00 to $35.00.

Each of the miners has a different problem according to Nomura. Alpha is expected to continue generating losses for “the next few years” as margins and cash flow come under more pressure. At Peabody, costs and “weak product mix” combined with currency exchange effects will be a drag through next year. Walter suffers from an industry-wide drop in the price of coking coal.

Here’s a rundown on current prices:

Alpha is down 7.7% at $7.89 in a 52-week range of 5.28 to $29.29. Shares closed last night at $8.55.

Peabody is down 2.5% at $25.53 in a 52-week range of $18.78 to $47.81. Shares closed at $26.18 last night.

Walter Energy is down 7.5% at $34.85 in a 52-week range of $29.75 to $83.77. Shares closed at $37.68 last night.

Arch Coal is down 3.2% at $7.69 in a 52-week range of $5.16 to $20.37. Shares closed last night at $7.94.

Consol is down 1.9% at $34.81 in a 52-week range of $26.41 to $46.90.

James River is down 3.5% at $3.61 in a 52-week range of $1.68 to $11.52. Shares closed at $3.74 last night.

Cloud Peak is down 2.7% at $18.35 in a 52-week range of $13.65 to $24.34.

The Market Vectors Coal ETF (NYSEMKT: KOL) is down about 1.2% at $24.77 in a 52-week range of $21.49 to $40.90.

Paul Ausick