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Bear of the Day

We have downgraded our recommendation to Underperform from Neutral on Penn Virginia Resource Partners LP (PVR), primarily due to lower commodity prices, a drop in coal production and increase in switching to emission free resources from coal. In second-quarter 2012, the partnership lagged our top and bottom-line projections.

Federal and state regulators have implemented new rules to minimize emissions of greenhouse gases. The shift of electric power generators to other sources of fuel, substituting the use of coal with natural gas or renewable energy, could affect the ability of Penn Virginia Resource's lessees to sell the coal they produce, thereby reducing its coal royalty revenues.

The partnership is trading at a premium with respect to forward P/E multiple in comparison to its peer group. Our target price of $22.00 reflects a P/E multiple of 41.5 based on 2012 EPU.

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