Alpha Natural Resources Inc. shares rose Monday after two Sterne Agee analysts said the market may be undervaluing some of its potential and they expect its stock to recover in the long run.
THE SPARK: Analysts Michael Dudas and Satyadeep Jain said that Alpha is facing some near-term operational challenges, but is managing well. Additionally, with strong liquidity, they expect that shares should recover once pricing normalizes and suggested that investors with some risk appetite may want to consider buying the stock at this point.
THE BIG PICTURE: Alpha on Friday reported a loss for its second quarter following a price and profit margin collapse due to falling demand for coal. The amount of coal it sold fell, too, down 19 percent to 21.6 million tons. The quarter's results missed analyst expectations and sent shares down in trading Friday
Chairman and CEO Kevin Crutchfield said the company is idling unprofitable coal capacity for coal used for heating and steelmaking. The company anticipates "additional actions" may be required by the end of the year and said the company is adjusting overhead and capital spending to be in line with the company's changing size.
THE ANALYSIS: The analysts said that while pricing and volumes appear to be bottoming, the company has a high level of liquidity. They said that this liquidity and its market position should allow the company's shares to recover once prices normalize.
The analysts maintained a "Buy" rating and have a target price of $14.
SHARE ACTION: Shares increased 16 cents, more than 3 percent, to $5.11 by midafternoon after hitting a 52-week low of $4.78 earlier in the day. The stock peaked for the year in January at $10.74 and has been falling steadily since.
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