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Strong Buy on Alliance Resource

Zacks Equity Research

On Jul 2, Zacks Investment Research upgraded Alliance Resource Partners LP (ARLP) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The coal producer delivered positive earnings surprises in three out of the last four quarters with an average beat of 20.4%. The long-term earnings growth is presently pegged at 6.00%.

The partnership was able to register an impressive 24.1% increase in sales volume in the first quarter. In addition, sales price per ton also improved marginally from the prior-year quarter.  These factors have helped the partnership to clinch an earnings surprise in the last reported quarter.

Alliance Resource Partners is expected to keep this positive momentum going with its marketing team securing an order for 2 million tons through 2016. Moreover, power generation from coal has increased from the 2012 level, primarily due to favorable weather patterns and a recovery in natural gas prices.

The solid performance also allowed the management of Alliance Resource Partners to increase its quarterly cash distribution rate. In May 2013, the partnership paid $1.13 per unit, which reflected a 10.2% increase from the year-ago quarter and a 2.0% increase sequentially.

The partnership is expected to invest in the range of $370 million to $400 million in 2013. The partnership will acquire new coal reserves, develop its existing mines and ensure proper maintenance of its existing mines. These initiatives will help the partnership to produce extra tons cost effectively, thereby boosting margins.

The Zacks Consensus Estimate for 2013 increased 2.3% in the last 60 days to $6.30 per share. The long-term earnings growth rate is presently pegged at 6.00%.

The large coal producers like Peabody Energy (BTU) and Arch Coal (ACI) among others have trimmed their capital expenditure and production to offset the decline in demand of coal. Having said that, the increase in natural gas prices and improvement in global steel consumption could help the coal behemoths to regain lost ground.

Besides Alliance Resource Partners, Hallador Energy Company (HNRG) has a favorable Zacks Rank #2 (Buy).

Read the Full Research Report on ARLP

Read the Full Research Report on ACI

Read the Full Research Report on BTU

Read the Full Research Report on HNRG

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