Fording Canadian Coal Trust

Fording Canadian Coal Trust (FDG) reported disappointing first-quarter results on Apr 21, but the company quelled investor concerns by providing a very bullish forecast for the rest of the year. With a substantial number of its contracts for 2008 negotiated, Fording is expecting its average selling price for coal to be more than twice the level from 2007. Current-year earnings estimates have almost doubled in just the last 30 days.

Fording Canadian Coal Trust operates as an open-ended mutual fund trust in Canada, and makes quarterly distributions to its shareholders. The company holds a 60% interest in Elk Valley Coal, which produces and sells metallurgical coal that is used for making coke by integrated steel mills. Elk Valley Coal is the world's second largest exporter of metallurgical coal and owns interests in six operating coal mines. Fording Canadian Coal Trust offers its products in Asia, Europe, North America, and South America. The company was founded in 1991 and is based in Calgary, Canada.

A Bullish Projection

Although Fording's first quarter results were down sharply from the same period last year, the company is anticipating increased demand and very strong pricing power in the next year that should significantly effect the company's revenue and profitability.

Elk Valley Coal, a primary constituent of Fording, has completed negotiations for more than two-thirds of its anticipated coal sales for the 2008 coal year that began on Apr 1. The company is projecting the average coal price for the 2008 calendar year to be in the range of $195 to $205 per tonne. This would mark a significant increase from 2007 levels, in which the average selling price was $95.70.

Fording also noted that the substantial increase in coal prices over 2007 levels reflects the extreme tightness in the metallurgical coal market.

Estimates Rising

With the projection of a very favorable environment for this coal producer, the one covering analyst has significantly boosted earnings estimates. Within just the last 30 days, the current-year estimate has almost doubled, advancing to $9.40 per share from $5.99 per share. That is a serious jump.

With this bullish earnings projection, this stock looks very attractively priced, trading at just above 7X the current-year estimate.

The Chart

Shares of FDG have been in rally formation for most of the year, beginning from the low of Jan 22 just below $32. Since then this stock has advanced beyond the $68 mark, a hefty 100% return in less than four months. There is a very nice level at $65 that should provide support if this stock takes a breather. But with the fundamentals aligning, and bullish projections abound, this stock looks well positioned to continue its upward ascent.