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SunCoke Energy's MLP Acquisition to Lower Cost of Operation

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SunCoke Energy, Inc. (SXC - Free Report) recently announced that it has completed the acquisition of all remaining outstanding common units of its sponsored master limited partnership (MLP) subsidiary — SunCoke Energy Partners, L.P. 

Notably the acquisition was announced in February 2019. Unitholders of SunCoke Energy Partners will receive 1.4 shares of the company, whichrepresents a 9.3% premium to the partnership’s closing price on Feb 4.

Reason for the Acquisition

The company is focused on growth opportunities as well as generating immediate and long-term value for stakeholders. A simplified large publicly-traded company increases liquidity in the market and enhances free float.

The acquisition will reduce the estimated operating cost by nearly $2 million per year. Estimated cash tax savings will be approximately $40 million over the next five years. The company will distribute 24 cents annual dividend per share in the first quarter. We believe that the company will generate more cash flow that will enhance organic growth projects in the future.

Coking coal is essential for production of steel. The imposition of 25% tariff on steel imports by Trump administration has raised domestic steel production. The upside in production will benefit SunCoke Energy. Currently, the company has 5.9 million tons of annual coke making capacity on a global scale. In addition, the acquisition of SunCoke Energy Partners will further strengthen its position in the U.S. coke making business.

Initiatives to Stay Competitive

U.S. coal companies are gradually losing foothold as consumption and export of thermal coal is projected to decline going forward. Increasing awareness toward the environment has created a shift toward clean energy sources for power generation.

To cope with the current scenario, coal companies are working on lowering operating costs, reducing production from high cost mines and idling mines to counter declining demand. Recently, Peabody Energy Corp. (BTU - Free Report) and Arch Coal Inc (ARCH - Free Report) have decided to form a joint venture by merging some of their most-productive coal mines in Powder River Basin and Colorado. The deal will reduce the cost of operation and offset competition.

Zacks Rank & Key Pick

SunCoke Energy currently has a Zacks Rank #4 (Sell). A better-ranked stock from the same industry is Natural Resource Partners LP (NRP - Free Report) , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Natural Resource Partners delivered average positive earnings surprise of 11.01% in the last four quarters.The Zacks Consensus Estimate for 2019 earnings moved up 19.3% to $5.75 per share in the past 60 days.

Price Performance

 

Shares of the company has gained 1% in the past six months compared with industry’s declined of 14.6%.

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