CONSOL Energy by Kopin Tan
Summary: CONSOL Energy Inc. (CNX) shares are up 15.3% since the beginning of January when weather turned cold -- five times the S&P's rise and well ahead of other coal companies like Peabody Energy Corp. (BTU), Arch Coal Inc. (ACI) and Massey Energy Company (MEE). Coal prices have fallen from $58 to $40/ton over the last year, though CONSOL is insulated from further fallout through its forward commitments at around $40/ton for the rest of 2007. But the company's hot streak leaves room for a substantial pullback. Margins are under pressure, recent changes in union workers' conditions could add 5% to unit costs, and coming warm weather will put downward pressure on future negotiations with utility companies. The use of coal to generate electricity is expected to rise, but only if it stays cheap relative to other energy sources. Sales growth is flat, and Street exuberance (of 17 covering analysts none have it as a Sell) is cause for concern. Shorting the energy market can be hazardous, which is why traders betting on a correction should buy puts: With shares at $35, March 35 puts trade at $1.25.