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On Jan 25, 2013, we have upgraded our recommendation to Outperform from Neutral on Natural Resource Partners L.P. (NRP - Analyst Report). Currently, the partnership carries a Zacks Rank #2 (Buy).

Why the Upgrade?

Natural Resource’s string of unconventional asset acquisitions led us to move up our long-term expectation. The partnership’s purchase of frac sand reserves is expected to quicken the pace of oil and gas production in the near term. Meanwhile, Natural Resource also picked up an overriding interest in the liquids-rich portion of Marcellus Shale.

We believe these initiatives will drive growth given the increasing preference for natural gas and liquids as an energy source in the U.S.

Natural Resource’s earnings of 48 cents per unit for the third quarter 2012 widely beat our estimate of 42 cents per unit. Revenue followed the same path and stood at $94.2 million beating our expectation by 9.5%. Earnings surprises generally drive positive estimate revisions.

Recently, the partnership was engaged in another key stake buyout in the Trona ore mining play that could prove profitable in the future. Natural Resource’s offering of a consistent quarterly distribution rate of 55 cents per unit and a five-year yield of 5.38% also look encouraging.   

Furthermore, the International Energy Agency (IEA) expects the coal market to make a comeback which will complement the partnership’s strategic purchase of the low-cost Deer Run coal mine.

Moreover, visible growth signs in the premier market of China will open up a window of coal export opportunities for the partnership with volumes produced in the country failing to meet their domestic demand.

Other Stocks to Consider

Besides Natural Resource Partners, other companies in the energy market domain who are performing well and currently maintain a Zacks Rank #1 (Strong Buy) are Integrys Energy Group Inc. (TEG - Analyst Report), Wisconsin Energy Corp. (WEC - Analyst Report) and Ameren Corporation (AEE - Analyst Report).

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