Investing

Coal Miner Alpha Metallurgical Resources Begins 2023 Leading the QVF Quant Model

Leading US coal miner Alpha Metallurgical Resources (US:AMR) has entered 2023 leading Fintel’s QVF quant (quantity, value, fund sentiment) leaderboard with the highest score globally of 94.91.

The Appalachian coal producer went from strength to strength over 2022 rising more than 130% over the year as commodity prices soared from rising pandemic recovery demand and the Ukraine War which dislodged global gas market supplies. Coal prices a

Sales generated from operations are expected to roughly double for the 2022 financial year, which is currently translating to significant bottom-line profit growth for the company and attractive quant metrics.

AMR’s leading QVF score is comprised of three key factors which have been explained a little further below.

AMR’s high quality factor score of 97.40 is based on the stocks 3 year average return on investor capital of 0.42 which has grown by 11.54%.

The value score of 92.55 is based on a 3 year average EBIT/EV ratio of 0.20.

The final factor contributing to the score is the Fund sentiment score of 74.97 which has been driven by 13.71% growth of institutional ownership on the register. The score ranks AMR in the top 10% of 36,606 screened global securities.

AMR has a total of 444 institutional owners on the register that own a total of 12.67 million shares. The largest institutions include: Renaissance Technologies LLC, State Street Corp, Gendell Jeffrey, Hudson Bay Capital Management LP and Alta Fundamental Advisers LLC.

During the third quarter investor update in early November, AMR told investors that total revenue from operations grew by 34% over the year to $869.8 million and marginally beat consensus forecasts of around $860 million.

Operating cash flows grew by 517% to $497 million while tons of coal sold during the period declined by -12.8%  to 4.1 million tonnes.

At the bottom line, net income rose 301% to $251.8 million, equating to earnings per share of $14.21. Despite the strong growth in profits, the reported EPS fell short of polled analyst forecasts of $16.80 per share.

A chart from Fintel’s financial metrics and ratios page for AMR shows the strong trajectory of sales and profitability for the company.

At the end of November, AMR management provided operational production and cost guidance for 2023, telling investors they expect to ship between 16.7 to 18.4 million tons of coal in 2023. The midpoint of the guidance range represents estimated production growth of around 7% for next year, when compared to the midpoint of 2022 full year guidance.

On the cost side, Alpha expects to incur capital expenditures of $250 to $280 million and SG&A costs somewhere between $59 to $65 million.

Alpha’s Chairman and CEO David Stetson said “These ranges reflect an expectation of continued inflationary pressure through CY23”.

Cowen equity research analyst Lance Vitanza noted in a report that management’s 2023 guidance was largely consistent with the institution’s internal expectations. The downside to the guidance was from the Capex side which was significantly higher than the analyst forecasted.

Following the Q3 result, Vitanza highlighted that the remaining estimated $550 million balance for share buybacks will provide AMR with the ability to support its share price over the next year as falling coal prices could stabilize to possible attractive new normal.

Vitanza believes AMR’s shares remain attractively priced which plays into his ‘outperform’ stock call and $215 price target.

Fintel’s average consensus forecast price of $208.08 suggests the stock could see 42.14% upside in 2023. In contrast, the consensus revenue forecast suggests sales will decline around -4.34% over the same period.

More on the QVF scoring model (Quality + Value + Fund Sentiment) 

The QVF screen combines the Quality + Value scoring model (known as the QuantSoft) score with the Fund Sentiment score.

The original Quality+Value Scoring Model (also known as the QuantSoft Score) was developed by Wilton Risenhoover and is based on his research while at UCLA Anderson School of Management.

The original Quality+Value Score is a six-factor model that ranks companies on their cash-generating ability and growth. Additionally, there is a significant value factor in it. It identifies very good, durable companies with a large moat that have fallen into disfavor by the market and are likely to recover.

This enhanced QVO Scoring Model adds two more factors to the Quality/Value Score – both based on measures of fund sentiment.

The addition of fund sentiment factors to the traditional Quality+Value score slightly increases the ranks of companies that have high accumulation by institutions and is expected to improve returns over the long term.

This article originally appeared on Fintel

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