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Analyst Blog

On Jul 9, 2013, we downgraded our recommendation on energy company CONSOL Energy Inc. (CNX - Analyst Report) to Underperform from Neutral. CONSOL Energy currently has a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

A number of negative factors, including over-reliance on a limited group of customers for bulk sales, an unexpected incident at the Blacksville No. 2 Mine and slow progress in the coal market have led us to downgrade our recommendation on the stock.

These factors also affected the Zacks Consensus Estimate. Over the past 90 days, the consensus estimate for second-quarter 2013 has decreased by 3 cents to 18 cents reflecting an estimated decline of 40.7% year over year.

Cause for Concern

CONSOL Energy depends on a limited group of customers for selling coal in bulk amounts. If the company fails to ink new deals or/and retain existing customers, its future performance will be affected.

We note that coal mining in Blacksville No. 2 Mine was suspended for nearly two months, when smoke was detected at the Orndoff shaft near Wayne in Greene County. Though CONSOL Energy has resumed operations at the mine after implementing the necessary measures, the incident has once again raised questions regarding the safety of underground mining.

In addition, CONSOL Energy temporarily closed its low-volume Buchanan mine and will continue to idle the low-volume Amonate mines due to weak market conditions. This will lower or negatively impact the company’s near-term financial results.

Other Stocks to Consider

Stocks in the industry that are worth considering include Alliance Resource Partners LP (ARLP - Snapshot Report), Companhia Paranaense de Energia (ELP - Analyst Report) and DTE Energy Company (DTE - Analyst Report), each with a Zacks Rank #1 (Strong Buy).

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