We reaffirm our Neutral recommendation on Pennsylvania-based CONSOL Energy Inc. (CNX - Analyst Report). The multi-fuel energy company reported dull financial results in the third quarter 2012 with top-and bottom-line trailing the Zacks Consensus Estimates.
The sluggish global steel market conditions are expected to prevail in the near term. This prompted CONSOL to temporary halt production at its Buchanan and Amonate mines. However, weather-induced demand for electricity during the winter months will lend stability to the company’s earnings in the coming quarters with a gradual decline in coal stockpiles.
Like the recent shutdown of the Miller Creek surface unit, pressure from regulatory bodies would continue to constrict the company’s margins. However, CONSOL Energy’s low-cost coal operations in the northern Appalachian basin will provide downward support to its earnings.
Meanwhile CONSOL Energy generated $224 million from asset sale which would aid the company to achieve its growth goals. Also, the company is focusing on the development of its natural gas assets owing to increasing coal-to-gas switching in the U.S. which will bode well for CONSOL Energy’s future business targets.
Nevertheless, unexpected mine accidents, maintenance outages and commodity price volatilities are periodic risks that could thwart growth.
CONSOL Energy estimates coal sales to be around 55.9 million tons for 2012. For 2013 and 2014, the company expects coal production to be 56.7 million tons and 61.8 million tons, respectively. In the fourth quarter 2012, CONSOL Energy anticipates coal sales to be 14.0 million tons.
Gas production for 2012 is expected in the band of 157–159 billion cubic feet (Bcf). For the fourth quarter, gas production is projected to be roughly in the range of 42.5–44.5 Bcf. The Zacks Consensus Estimates for the fourth quarter and full year 2012 presently stand at 22 cents and 92 cents per share, respectively.
The challenging coal market outlook is reflected on both CONSOL Energy’s and its rival Peabody Energy Corp.’s stocks which share a short-term Zacks#3 Rank (Hold rating).
Headquartered in Canonsburg, Pennsylvania, CONSOL Energy produces coal and natural gas for energy and raw material markets. The company is engaged in the mining, preparation, and marketing of steam coal primarily to electric power generation industry; and metallurgical coal to steel and coke producers.