Neutral on Patriot Coal - Analyst Blog
31 August 2011 - 1:52PM
Zacks
Despite impressive second quarter 2011 results for
Patriot Coal Corporation (PCX), expectations of
higher costs at the company’s mining operations keep us on the
sidelines. We maintain our Neutral recommendation on Patriot.
Patriot Coal’s second quarter earnings of 13 cents per share
beat our estimates of 10 cents per share. Patriot’s bottom line
results were slightly affected by costs, while robust sales volumes
and prices led to the beat. The company’s quarterly revenue of
$632.2 million was also above the Zacks Consensus Estimate of $612
million.
Going forward, we expect Patriot to benefit from its met coal
expansion plans. Patriot continues to actively manage its
strategies to further improve performance in 2012 and beyond. As a
result, the company is continuously looking to lock in excellent
margins by selling its expected met coal production at attractive
prices.
Further, forecasts continue to indicate the sustainability of
coal market globalization, which point to a substantial rise in the
demand for metallurgical as well as thermal coal over the next
several years. We expect these factors to instill a positive
earnings trend for Patriot going forward.
However, as a negative sign, the company expects costs to be
higher at its mining operations as new met mines enter production,
which may impact the company’s earnings forecasts. Costs for
full-year 2011 in both Appalachia and Illinois regions are expected
to be significant.
Moreover, the coal mining industry remains extensively
regulated, which poses difficulties in obtaining mining permits at
various stages. This may impact the company’s earnings in the long
term.
St. Louis, Missouri-based Patriot Coal currently has a
short-term Zacks #3 Rank (Hold rating). The company’s peers
Penn Virginia Resource Partners L.P. (PVR) and
Alliance Holdings GP L.P. (AHGP) with a Zacks #2
Rank (Buy rating), are better ranked, based on short-term
ratings.
ALLIANCE HLDGS (AHGP): Free Stock Analysis Report
PATRIOT COAL CP (PCX): Free Stock Analysis Report
PENN VA RESRC (PVR): Free Stock Analysis Report
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