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Recently ArcelorMittal (NYSE:MT) and Peabody Energy (NYSE:BTU) together made a winning bid for Australian coal producer Macarthur Coal. Then on Wedneday, Sept. 7, a report from the Times of London said that Anglo-American is thinking of offering $120 per share for Walter Energy (NYSE:WLT). The report suggested that BHP Billiton (NYSE:BHP) might be interested in buying WLT too. This hinted that the price could go even higher than $120 per share. WLT went up +$15.99 on the rumors to $90.98 at the close, even though there has not been a confirmed offer. Most other coal stocks went up significantly in sympathy. This list included the coal MLP.

Many people are remembering the comment from Peabody Energy’s Chairman and CEO Gregory Boyce, who stated in June 2010, “I believe we are in the early stages of a long-term super cycle for coal.” Boyce pointed out that coal had been the world’s fastest-growing fuel over the last decade. Boyce expects this trend to continue with Asian nations building more coal-fired power generation plants. He said that more than 94GW of new power generation plants were supposed to come online by the end of 2010, resulting in 375 million tons a year of coal consumption.

Boyce speculated that the current pace of generator addition would add another one billion tons of new thermal coal demand every three years. Boyce further stated that steel demand was expected to increase by 50% by 2020, with a similar increase in demand for metallurgical coal expected. Boyce stated that seaborne coal demand should increase by 300-400 million tons by 2015, with China and India responsible for one-half to two-thirds of this new demand growth.

If you are afraid of the EU credit crisis and a possible US recession, you may not want to invest in coal stocks right now. However, the coal super-cycle is still likely a long-term trend. Plus the mild new buyout frenzy, even if it is just temporary, may lift coal equities in the near term. This would likely include coal MLPs. A few of the coal MLPs are: Alliance Resource Partners (NASDAQ:ARLP), Alliance holdings (NASDAQ:AHGP), Natural Resource Partners (NYSE:NRP), and Penn Virginia Resource Partners (NYSE:PVR). These companies all control coal resources in much the same way coal companies do. However, they are more dedicated to paying out high dividends to the shareholders. For this reason, the stocks tend to be much more stable. They also pay much higher dividends.

Let’s take a look at the financial fundamentals of these MLP’s. Some of the data are in the table below. (Data sourced from TD Ameritrade and Yahoo Finance.)

Stock

ARLP

AHGP

NRP

PVR

Price

$72.70

$48.01

$29.21

$26.52

1-Year Analysts’ Target Price

$84.71

$59.00

$35.60

$30.25

Predicted % Gain

16.5%

22.9%

21.9%

14.1%

P/E

9.92

14.99

16.37

21.53

FPE

8.59

12.47

15.13

15.24

Average Analyst's Opinion

2.4

2.3

2.1

2.2

Miss Or Beat Amount For Last Quarter

+$0.11

+$0.03

+$0.04

-$0.04

EPS % Growth Estimate for 2011

18.00%

20.60%

11.70%

92.80%

EPS % Growth Estimate for 2012

7.40%

9.70%

12.20%

8.70%

5-Year EPS Growth Estimate per Annum

10.00%

14.00%

4.00%

4.00%

Market Cap

$2.69B

$2.87B

$3.10B

$1.88B

Enterprise Value

$3.05B

$3.25B

$3.78B

$2.76B

Beta

0.94

0.89

0.75

0.86

Total Cash per Share (mrq)

$9.44

$5.84

$1.37

$0.15

Price/Book

3.19

7.91

3.94

4.61

Price/Cash Flow

6.30

5.73

13.10

13.08

Short Interest as a % of Float

2.58%

0.81%

0.69%

0.32%

Total Debt/Total Capital (mrq)

56.65%

56.57%

50.59%

68.33%

Quick Ratio (mrq)

2.83

2.83

--

--

Interest Coverage (mrq)

11.82

11.72

5.22

5.65

Return on Equity (ttm)

35.44%

58.36%

21.75%

14.36%

EPS Growth (mrq)

11.91%

15.53%

27.69%

66.01%

EPS Growth (mrq)

57.44%

40.21%

30.61%

-6.31%

Revenue Growth (mrq)

14.39%

14.39%

14.85%

63.82%

Revenue Growth (ttm)

24.04%

24.04%

22.56%

38.27%

Annual Dividend Rate

$3.68 (5.20%)

$2.33 (5.00%)

$2.16 (7.70%)

$1.96 (7.60%)

Gross Profit Margin (ttm)

33.66%

33.66%

99.09%

24.73%

Operating Profit Margin (ttm)

22.62%

22.35%

66.92%

14.96%

Net Profit Margin (ttm)

20.71%

20.43%

53.91%

7.14%

PVR has the lowest Net Profit Margin and the highest P/E and FPE. It also missed on earnings last quarter versus all of the others beating on earnings. The growth profiles for both ARLP and AHGP are much better than those of NRP. However, NRP has a higher NET Profit Margin and a higher dividend percent return. ARLP has the lowest Price/Book.

Let’s look at the charts to get some technical input before making any decisions.

The two-year chart of ARLP is below:

The two-year chart of AHGP is below:

The two-year chart of NRP is below:

The two-year chart of PVR is below:

The NRP chart is substantially weaker than the other three. Other than that, they all look like they may be ready to bounce upward. They are all coming upward from below their 200-day SMAs. Each seems to have put in a classic Bollinger Band double bottom. The MACD of each seems to be indicating a longer up movement is likely.

Since PVR has worse fundamentals and NRP has the weakest chart, I might tend to stick to ARLP and AHGP, even though they have lower dividend returns. The dividends of these two are still good. Plus the two year charts indicate that these MLP's have grown substantially over the last two years. Both of these stocks have outperformed coal stocks such as ACI, PCX, ANR, CNX, and more. On top of that they have provided good dividends. These MLP's give every indication of being good investments.

Good luck trading. 

Source: Buy Into Coal's 'Super Cycle' With MLPs