On Oct 8, 2013, Zacks Investment Research upgraded Hallador Energy Company (HNRG) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
Hallador Energy generated positive earnings surprise in 3 out of the last 4 quarters, with an earnings beat of 35.7%. In the second quarter of 2013, the company reported earnings of 28 cents per share, beating the Zacks Consensus Estimate by 10 cents. Quarterly earnings increased 21.7% year over year due to an improvement in the company’s top line on the back of a rise in coal sales, and a decline in the cost of coal exploration.
Hallador Energy was primarily engaged in the production of oil and gas. However, it had entered into a 50:50 joint venture with Sunrise Coal, LLC in 2006. The company has in recent times been steadily diversifying into the coal business. This diversification would add to Hallador Energy’s profits and boost future performance.
As of Jun 30, 2013, Hallador Energy had a cash balance of $14.8 million and $165 million available under the senior secured revolving credit facility. During the first six months of 2013, the company’s cash generation from operating activities was $13 million.
A stable liquidity position along with a steady cash generation capacity encourage the company to increase its capital spending by more than 2.5 times from the year-ago level to $14.8 million in the first half of 2013.
Hallador Energy has purchased a multi-commodity truck/barge terminal, Ohio River Terminal, for $2.8 million. The Ohio River Terminal is close to a few railroads, dock and a power generation plant. The company intends to utilize this terminal to ship its coal, thereby reducing transportation costs.
As per an Energy Information Administration report, total coal consumption will increase in the near term primarily due to strong demand for electricity generation and volatility in natural gas prices. It is a positive sign for Hallador Energy, as the company is primarily engaged in the production and sale of steam coal.
We note that the company is paying special cash dividends from Jul 2010. Further, the board of directors has approved that it will distribute 4 cents per share as a regular quarterly cash dividend to shareholders from Apr 2013. This initiative will help Hallador Energy to attract more investors and maximize shareholders wealth.
Other Stocks to Consider
Besides Hallador Energy, other stocks in the coal industry that are presently performing well include James River Coal Co. (JRCC), SunCoke Energy Inc. (SXC) and SunCoke Energy Partners, L.P. (SXCP), each with a Zacks Rank #2 (Buy).