On Nov 10, 2016, we issued an updated research report on Natural Resource Partners L.P. (NRP - Free Report) . The partnership is poised to reap the benefits of improving coal prices, which is being driven by changes in the coal markets. However, stringent emission regulation and dependence on a few customers for coal royalty revenues are major headwinds.
Natural Resource Partners’ earnings in the reported quarter were lower than the Zacks Consensus Estimate even though the total revenue surpassed the mark. Amid the difficult coal market fundamentals, Natural Resource Partners is working on a strategic plan to strengthen its balance sheet and improve liquidity. The partnership repaid debts worth $144.6 million in the first nine months of 2016.
Natural Resource Partners’ exposure to metallurgical coal, prices of which have been on the rise in last few months, places it advantageously. Rising demand for domestic thermal coal due to improving natural gas prices could boost coal production from its high-quality coal mines, paving the way for an increase in royalty revenues.
In July, the partnership sold its non-operated oil and gas working interest assets in the Williston Basin for $116.1 million. This has allowed the partnership to focus on its core activities in operation, primarily aggregates, soda ash, and the coal and hard minerals business segments.
However, dependence on a few customers for the majority of its royalty revenues could significantly impact the prospects of the partnership. Last year, Natural Resource Partners lost one of its premier customers due to bankruptcy.
In addition, stringent emission standards are resulting in a decline in the usage of coal in power plants, which will adversely impact Natural Resource Partners’ coal royalty revenues.
Natural Resource Partners currently sports a Zacks Rank #1 (Strong Buy). Some other favorably placed stocks in the coal industry include Cloud Peak Energy (CLD - Free Report) , SunCoke Energy, Inc. (SXC - Free Report) and Alliance Resource Partners LP (ARLP - Free Report) . Each of these stocks sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cloud Peak Energy, SunCoke Energy and Alliance Resource Partners have each surpassed third-quarter 2016 earnings estimates by a respective 150.0%, 177.78% and 13.75%.
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