Massey Energy: Continuing to Expand

May.25.08 | About: Alpha Appalachia (MEE)

Massey Energy (NYSE:MEE) is burning it up. Current-year earnings estimates have soared 62 cents to $3.08 per share just over the past month. Nine of the 13 analysts have raised their forecasts. Analysts also expect a further jump of 36.3% next year. The stock is cheap with a PEG ratio of 0.6.

Full Analysis

Massey Energy Company, through its subsidiaries, produces, processes, and sells bituminous coal. The company's customers include electric utilities, steel manufacturers, industrial customers, and energy traders and brokers.

As of December 31, 2007, it owned and operated approximately 188 wells, 200 miles of gathering line, and various small compression facilities in Appalachian Basin. The company also operated 47 mines, including 35 underground and 12 surface in West Virginia, Kentucky, and Virginia.

In late-April, the company said that its first-quarter profit climbed nearly 29% as it earned more on each ton of coal sold. Net income for the three months ended March 31 rose to $41.9 million, or 52 cents per share, from $32.6 million, or 40 cents per share, during the same period a year earlier. Analysts expected the company to earn 33 cents per share. Revenue increased to $644.6 million from $607.3 million a year before. Analysts predicted revenue of $617 million.

Based on current coal market conditions and the Company's expansion plans, Massey expects to ship approximately 50.0 million tons in 2010. While it is difficult to accurately project pricing 2 years in the future, the Company expects very strong pricing for its remaining unsold 2010 tons.

Commenting on the quarter's results, Massey's Chairman and CEO Don L. Blankenship said:

We are pleased with our first quarter results. The strong earnings are an even greater accomplishment in light of the intensive work we were doing on our expansion and cost reduction projects during the quarter. We opened 9 new mines and we had two longwalls and a large electric shovel down for rehabilitation and relocation. This temporarily reduced productivity, as we expected, but productivity should improve in the second quarter and beyond. We are on track for another record year.

In additional news, the company expects to open a new coal mine every 17 days this year as it continues an ambitious expansion designed to up production 25% by 2010. Chief Executive Don Blankenship told Wall Street analysts that the Richmond, Va.-based company has secured all the government permits and equipment it needs for the expansion.