We have seen coal producers like Peabody ( ) and Arch Coal () coming up with lackluster Q1 results. But diversified fuel producer Consol Energy’s ((CNX - Analyst Report) ) impressive results – reported on Tuesday, before the market opened – perked up the entire coal space.
Consol surged about 4.72% in the key trading session and we believe, Consol’s results acted as a cornerstone for the entire space as evident by a 2.76% gain in Arch Coal and a 1.53% rise in Peabody. Arch Coal added 0.67% in after hours. The pure play on the coal sector – Market Vectors Coal ETF (KOL) – was up 1.61% as a result as well (read: Is This the Year for the Coal ETF?).
Consol's Q1 Earnings in Focus
Consol Energy's adjusted earnings of $0.53 per share for the first quarter breezed past the Zacks Consensus Estimate of $0.20 as well as last year’s loss of $0.02 a share. Its revenues also grew 15% to $969.2 million and beat the Zacks Consensus Estimate of $883 million backed mainly by the natural gas segment.
However, the company sounded bullish on the pricing trend of coal through 2014 and into 2015 on lower stockpiles. Low coal inventory as well as gas inventory thanks to the record chills this year, sluggish hydro-electric output, and higher natural gas prices should propel the demand for coal in 2014 and 2015.
Having discussed Consol in detail, let’s take a glance at Peabody and Arch Coal’s earnings as well that were reported last week.
Peabody Q1 Earnings in Focus
Peabody Energy reported a loss of $0.19 per share in the first quarter against the Zacks Consensus Estimate of a loss of a penny and the year-ago loss of $0.05 per share. Total revenue of $1.63 billion was down 6.9% year over year and fell shy of the Zacks Consensus Estimate of $1.70 billion marred by lower realized prices.
There was no spark from the guidance point of view as well. The company reaffirmed its full-year 2014 total sales target of 245–265 million tons, expects to incur a loss in the range of $0.14 to $0.39 per share and lowered its full-year capital spending projection.
Arch Coal Q1 Earnings in Focus
Arch Coal’s first-quarter 2014 adjusted loss of $0.60 per share was much wider than the Zacks Consensus Estimate of a loss of $0.42 as well as the year-ago loss of $0.34. Arch Coal’s first-quarter total revenues of $736 million also missed the Zacks Consensus Estimate of $746 million and failed year over year hurt by price weakness. The coal producer also slashed its full-year sales guidance to reflect lower metallurgical coal demand.
Both Consol and Peabody have decent exposures in KOL ETF. However, Arch Coal has a very low share (1.84%) in the fund. While the recent surge may not continue especially after mixed-bag sector results, the basket approach could be an interesting option for investors looking to stay exposed to this beaten-down sector and offering some bargains but not willing to suffer company-specific risk. Below, we have highlighted the fund in detail.
KOL in Focus
Launched in January 2008, KOL tracks the Stowe Coal Index, providing exposure to the companies related to the coal industry. Even though this index has a global focus, nearly 38% of its investments are directed toward U.S. companies, followed by China with a 23.5% share (read: Coal ETF in Focus on Sluggish Earnings).
KOL has amassed an asset base of $167.6 million and charges 59 basis points in fees annually. This fund holds 35 stocks and the top 10 companies hold about three-fifth share of total net assets. The in-focus Consol Energy and Peabody take up the fourth and fifth positions in the portfolio with about 6.70% and 6.40% of the total assets (see more in the Zacks ETF Center).
The fund is currently trading a little higher than its 52-week low which leaves room for rally if the broad trends take a positive turn. The fund's Relative Strength Index is presently 53.21 indicating that KOL is in oversold territory and a good candidate for a rebound.
The Coal ETF has been an underperformer over the past one year losing about 5.5%. With stringent environmental legislation aimed at reducing carbon pollution in America, revival of alternative energy sources, supply glut and slowdown in high-consuming markets, coal ETF took a beating in the recent past (read: Inside the Incredible Surge in Solar ETFs).
However, things might reverse going forward, albeit at a slow pace, on China’s mini stimulus package and higher demand for thermal coal and long-term global urbanization trends.
So, if you believe this can be the case over the long haul, consider KOL on its present muted status. However, with a current Zacks ETF Rank #4 (Sell) and a high risk outlook, KOL demands high risk appetite of investors.
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