The U.S. coal industry has faced several hiccups due to the imposition of stringent environmental regulations over the last few years. Additionally, Clean Power Plan, which was introduced by former President Obama, made things more difficult for the coal industry. The introduction of this plan reduced the usage of coal, which was replaced with natural gas and renewable energy sources to produce electricity.
However, the scenario of the coal industry has reversed after the election of President Donald Trump, who plans to revive the coal industry and relax regulations that are hurting prospects. He has started to act on his pre-election promises and taken measures to revoke the Climate Power Plan.
Such actions are expected to benefit the coal stocks. Oklahoma-based Alliance Holdings GP, LP , sporting a Zacks Rank #1 (Strong Buy), is one such stock. It is a limited partnership formed to own and control Alliance Resource Management GP, LLC, ARLP, the managing general partner of Alliance Resource Partners, L.P. The company is a publicly traded limited partnership engaged in the production and marketing of coal to major U.S. utilities and industrial users. In addition, it leases land and operates a coal loading terminal. Further, it is engaged in trading of coal as well as offers services, including ash and scrubber sludge removal, coal yard maintenance, and arranging alternate transportation services.
Over the last three months, the industry has gained 23.3%, outperforming the 2.4% growth logged by the broader index.
Let us delve into other factors which make this Zacks Rank #1 stock a lucrative pick.
Strategically-Positioned and Diversified Asset Portfolio – The partnership is the largest coal producer in the Illinois Basin and second largest coal producer in the eastern United States. Alliance Holdings produced over 35 million tons in 2016. Its high-quality, low-cost asset base is strategically positioned to benefit from multiple transportation options and diverse logistics.
Dividend – The partnership declared a dividend of 73 cents per unit for the second quarter, up 32.7% compared with the distribution of 55 cents declared in the year-ago corresponding quarter and preceding quarter. Its current dividend yield of 10.78% is also much higher than the industry average yield of 3.74%. This reflects the strength of its balance sheet as well as its liquidity position.
Strong Leverage – As of Jun 30, 2017, Alliance Holdings’ debt stood at $385.9 million. The partnership has a debt equity ratio of 39.3% as against 65.3% for the broader industry. The relatively strong financial health of the company should help it perform better than its peers in a dynamic business environment.
Surprise History – The company topped estimates in three of the trailing four quarters with an average positive earnings surprise of 13.64%.
Earnings Estimate – As per the estimates of analysts polled by Zacks, earnings are expected to increase 7.4% in 2017 over 2016 and 0.6% in 2018 over 2017.
Other Stocks to Consider
You can consider other top-ranked stocks from the same space.
China Shenhua Energy Company Limited CSUAY is a coal company based in Beijing with operations in China and internationally. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Yanzhou Coal Mining Company Limited YZCAY is based in Zoucheng, China and operates as a subsidiary of Yankuang Group Corporation Limited. The company carries a Zacks Rank #2.
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