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Assessing Survival Potential: Alliance Resource Partners

Harrison Schwartz profile picture
Harrison Schwartz


  • Coal companies have been hit extremely hard by COVID-19 due to production suspensions and lower coal prices.
  • A major coal producer, Alliance Resource Partners, has lost two-thirds of its value and trades at a TTM EV/EBITDA of only 2.5X.
  • While 2020 will likely be a record poor year for the company, it has decent working capital and a surprisingly strong balance sheet to make it through difficult times.
  • Even after a downgrade, the company's credit rating is only slightly below investment grade, so its bankruptcy risk is low.
  • It has been the target of short-sellers. With production resuming, a short-squeeze is conceivable.
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With the market up 30% off of its March lows, many investors likely feel that there are few value opportunities left. That said, the market's rally has not been widespread, and large-cap technology companies have accounted for the bulk of the Nasdaq 100's and the S&P 500's strong performance. In fact, many smaller companies in hard industries remain at March 15th lows, one of which is the major U.S. coal producer, Alliance Resource Partners (NASDAQ:ARLP).

As you can see below, ARLP has drastically underperformed the coal ETF (KOL) and remains at a depressed price:

ChartData by YCharts

Without a doubt, the coal industry has been among the hardest hit by the efforts to fight the COVID-19 pandemic. The industry was already downtrodden after years of low coal prices due to a glut of fossil fuels, as well as depressed demand for steel (regarding metallurgical coal).

Alliance Resource Partners has shut down all of its coal production at its Illinois Basin Mines and has suspended its dividend distribution in order to maintain liquidity. It has also looked to cut capital spending and operational expenses, and anticipates that total sales will be 25% below its initial expectations. Other than that, the company has suspended all forward guidance.

On a TTM basis, the company has a dividend yield of 55% (though its dividend is currently suspended). It also trades at a third of its book value with an incredibly low TTM EV/EBITDA of 2.5X and a P/E of 1.15X. Obviously, ARLP is extremely cheap, and it appears investors are heavily discounting bankruptcy risk. However, if extreme equity dilution and/or bankruptcy can be avoided, the stock will likely see tremendous upside.

It is worth pointing out that the company also receives royalty revenues from oil and gas as well as transportation, yet those factors make

ChartData by YCharts

ChartData by YCharts

ChartData by YCharts

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This article was written by

Harrison Schwartz profile picture
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Analyst’s Disclosure: I am/we are long ARLP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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