We maintain our Neutral stance on the diversified fuel producer CONSOL Energy Inc. (CNX). CONSOL is predominantly an underground miner. The accident in the Upper Big Branch mine has caused regulators to step up enforcements and inspections of mines. Stringent enforcement of safety measures will undoubtedly increase operational costs of underground miners like CONSOL.
The positive catalysts of CONSOL Energy are its deep and diversified portfolio, largest research and development facility in the industry, focused efforts in energy development, improving energy efficiency and reducing pollution and strong performance of the coal division in the first quarter.
The headwinds for CONSOL Energy are its concentration of operation in Northern Appalachia that exposes it to weather, regulatory and transport issues in that region. CONSOL's performance depends on a limited group of customers who purchase coal in bulk amounts.
Hence, an unfavorable renegotiation in contract terms would adversely affect the operational metrics of the company. Wary of customer concentration, we maintain a cautious stance on the stock.
The company recorded first quarter 2011 earnings of 84 cents per share, surpassing the Zacks Consensus Estimate. The outperformance was attributable to a strong showing from the coal division. CONSOL Energy's coal division is expected to sustain the high level of performance in 2012 -2013 mainly due to resumption of production at the Amonate Met Mine.
The Zacks Consensus Estimate for second-quarter 2011 is 67 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $2.90 and $4.52 per share.
CONSOL Energy currently retains a Zacks #3 Rank (short-term Hold rating). We also retain a Neutral rating for its peers Arch Coal Inc. (ACI) and Peabody Energy Corp. (BTU).
Based in Canonsburg, Pennsylvania, CONSOL Energy is a multi-fuel energy producer as well as energy services provider, primarily catering to the U.S. electric power generation industry.
ARCH COAL INC (ACI): Free Stock Analysis Report
PEABODY ENERGY (BTU): Free Stock Analysis Report
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