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Growth & Income

Todd Bunton

Alliance Resource Partners, L.P.

ARLP

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Alliance Resource Partners, L.P. (ARLP - Snapshot Report) recently reported record first quarter revenues and earnings per unit, which came in 9% above the Zacks Consensus Estimate. It was ARLP's second consecutive positive earnings surprise.

Analysts have been revising their estimates significantly higher off the strong quarter, which has sent the stock to a Zacks #2 Rank (Buy).

As the partnership has been posting record financial results, it has also been consistently raising its distributions. It currently yields a juicy 4.9%.

Valuation is also attractive with shares trading at a PEG ratio below 1.0.

Alliance Resource Partners, L.P. is a coal-producing master limited partnership. It produces and markets coal to utilities and industrial users in the U.S.

First Quarter Results

On April 26, Alliance reported first quarter earnings per partner unit of $1.99, beating the Zacks Consensus Estimate by 16 cents. It was a 28% increase over the same quarter in 2010.

A strong increase in coal sales volumes and record prices drove revenues to a record $423.3 million, which was 11% higher than the same quarter in 2010.

Meanwhile, operating income rose 25% year-over-year as the company was able to leverage its fixed expenses.

Outlook

Analysts' estimates shot higher off the strong quarter. The Zacks Consensus Estimate for 2011 went from $7.47 before the earnings announcement to $7.74. It is currently 16% above 2010 EPS.

The 2012 consensus estimate also moved higher and is currently $8.39, corresponding to 8% EPS growth.

It is a Zacks #2 Rank (Buy) stock.

Alliance is heavily reliant on coal prices, which is heavily reliant on economic conditions. The 5-year Price & Consensus chart highlights this cyclicality:

ARLP: Alliance Resource Partners, L.P.

Consensus estimates fell sharply in late 2008 and 2009 along with coal prices, but have since rebounded sharply.

Management has stated that it continues to see strong customer demand for its coal products, and it expects 2011 revenue between $1.75 and $1.85 billion. This represents a 9% to 15% increase over 2010 revenues.

4.9% Yield

Alliance Resource Partners is an MLP and therefore pays out a majority of it earnings to unitholders through distributions. It currently yields a hefty 4.9%.

The partnership has a history of raising its distribution, even as coal prices collapsed in 2009.

ARLP: Alliance Resource Partners, L.P.

Valuation

The valuation picture looks attractive for ARLP. The stock trades at just 9.7x forward earnings, a discount to the industry average of 13.9x.

It sports a PEG ratio of 0.97 based on a 10% five-year growth rate.

Alliance Resource Partners, L.P. is headquartered in Tulsa, Oklahoma and has a market cap of $2.8 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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