Yesterday's gains for coal stocks (KOL) on the back of Consol Energy's (CNX) upgraded coal outlook could be wiped out in early trading, as UBS downgrades Alpha Natural Resources (ANR), Walter Energy (WLT) and Arch Coal (ACI) to Sell from Neutral (I, II, III).
UBS sees lower met coal price forecasts due to oversupply issues and the lower than expected Q2 benchmark settlement; the firm expects stressed balance sheets and accelerated cash burn, which could result in a 2016 liquidity crisis.
The firm says pure-play WLT has the highest met coal leverage in its coverage, while ANR and ACI also have high EPS sensitivity to changes in the met coal price.
Price targets are lowered to $3 from $5 for ANR, $5 from $8 for WLT, and $3 from $5 for ACI.
ANR -3.7%, WLT -3.2%, ACI -2.7% premarket.