Virginia-based premium coal producer, Alpha Natural Resources Inc. (ANR) will swap its place with Korn/Ferry International (KFY) to become an S&P Midcap 400 company from S&P 500 in accordance to the S&P Dow Jones Indices LLC, effective October 1, 2012. Alternatively, Kraft Foods Group Inc. (KRFTV) will substitute Alpha Natural Resources to become an S&P 500 company.
In recent times, Alpha Natural Resources’ credit worthiness plunged as Moody’s affirmed its assigned Baa3 rating, which indicates a negative outlook in terms of meeting financial commitments by the company in the long run. The company was unsuccessful in its cost management efforts as during the second quarter it incurred $2.2 billion of expenses due to restructuring and impairment purposes.
Although the company indulged in acquisitions to broaden its exposure to the Central Appalachian region, we believe rising coal to natural gas substitution in the U.S. will offset Alpha Natural Resources’ development prospects. This will be compounded by weak metallurgical coal demand internationally.
Along with this, Alpha Natural Resources’ asset retirement obligations continued to increase steadily, which at the end of the trailing six months ended June 2012 were $986.2 million, up from $934.6 million at year-end 2011. This indicates that the company has been involved in coal asset divestitures. With the U.S. coal market expected to remain bleak in the near term, Alpha Natural Resources’ thermal coal business will take a major hit. This could compel the company to cut back production levels or idle its coal-fired plants thereby affecting top-line growth.
The company’s financial position also looked shaky with cash in hand declining in the first and second quarters of 2012. Alpha Natural Resources’ cash balance declined by a huge 132.3% to $252.2 million as of June 30, 2012. Moreover, the company failed to effectively manage its debt level. Long-term debt as of June 30, 2012 almost remained flat year over year at $2.91 billion.
Meanwhile, Alpha Natural Resources’ stock performance has been on the downhill and quite volatile in the span of the last six months. The company also posted drab earnings results in the last three quarters with the loss widening every quarter. In the second quarter 2012, loss per share stood at 30 cents versus earnings of 97 cents in the year-ago quarter.
The Zacks Consensus Estimates for the third quarter and full year 2012 for Alpha Natural Resources currently stand at a loss of 40 cents per share and a loss of $1.39 per share, respectively. The company’s closest peer is Missouri-based, Arch Coal Inc. (ACI).
Alpha Natural Resources along with its subsidiaries engages in the production and selling of steam and metallurgical coal in the United States. The company was founded in 2002 and has a market capitalization of $1.44 billion with 14,000 full time employees. The company currently has a Zacks #3 Rank (Hold rating).
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