Can Big Coal Earnings Hold Up to Performance? (BTU, MEE, ACI, CNX, ANR, KOL)

The coal sector has enjoyed much of the same run that has been seen by other commodities of late.  Coal companies and commodities companies are about to start reporting earnings and we wanted to see which stocks have measured up and which ones can hold up during the earnings season deluge.  We wanted to review the major components to see which of these can and will be able to continue the run.  The real focus is if the growth expectations can hold up in 2011 as many are turning around.  We reviewed, Peabody Energy Corp. (NYSE: BTU), Massey Energy Co. (NYSE: MEE), Consol Energy Inc. (NYSE: CNX), Arch Coal Inc. (NYSE: ACI), and Alpha Natural Resources (NYSE: ANR) as earnings season approaches for these large coal players. We also compared these to the Market Vectors Coal ETF (NYSE: KOL) as the fund of coal miner stocks.

Peabody Energy Corp. (NYSE: BTU) trades around $51.70 today and the 52-week trading range is $34.89 to $52.19 and it has a market cap nearing $14 billion.  It is due with earnings on October 19 and Thomson Reuters estimates are $0.91 EPS on $1.86 billion in revenue.  This is a substantial expected earnings jump from a year ago and the Fiscal DEC-2010 estimates are $3.03 EPS and $6.9 billion.

We will pay attention to the international side of the story Australian operations for metallurgical coal demand.  Its size gives it plenty of clout, but the trends of mergers in commodities are a risk into year-end.  With the large market cap, Peabody is  one we feel would live up to be an acquirer rather than a target.  Shares are up over 20% from the August lows.

Massey Energy Co. (NYSE: MEE) reports October 26.  Thomson Reuters has estimates of -$0.17 EPS and $820.46 million in revenues.  The company was profitable a year earlier but that is expected to be 27% sales growth.  2010 is the pivot year now as estimates are only $0.40 EPS for all of 2010.  If you can go out a full year comfortably those estimates grow to $3.43 EPS in 2011.  The proof will be in the pudding.  While it has a lower market cap of $3.7 billion, it is the tainted name of the group.

As Massey is the safety target and the company responsible for the mine explosion earlier this year, Massey is to coal what BP has become to oil.  While it intends to boost production, there are still many questions.  Massey stock has run up with the sector, but it is still well off highs and that may bring in interested traders as it has underperformed on that measure..  At $36.20 it has a 52-week range of $25.85 to $54.80.  Still, shares have risen from $27 to over $36 since the summer lows and shares are up over 20% since the August lows.

Arch Coal Inc. (NYSE: ACI) is also due in a couple of weeks with earnings.  With shares around $27.00, its 52-week range is $19.09 to $28.52 and the market cap is almost $4.4 billion.  Thomson Reuters has estimates at $0.37 EPS and $800.96 million in revenues.  For 2010, those estimates are $1.13 EPS and $3.1 billion in revenues.  For 2011, the estimates jump to $2.55 EPS and $3.66 billion in revenues.

The thermal coal producer is growing its export operations and the big question is if production can keep growing.  Shares are close to a year-high and the stock has run from lows under $20 in mid-summer to the $27 handle today, more than a 35% gain.  A longer-term chart indicates some resistance ahead but there are no serious chart concerns even if that finds some resistance and pulls back a bit.

Consol Energy Inc. (NYSE: CNX) trades around $41.00 after a 2% run Thursday morning and is also on deck in a couple of weeks for earnings.  The 52-week range here is broad at $31.08 to $58.00 and the market cap is $9.24 billion.  Thomson Reuters has estimates of $0.60 EPS and $1.35 billion in revenues.  For 2010, the estimates are $2.56 EPS and $5.25 billion in revenues.

The company targeted gas production up 44% this week for the quarter since it hit gas in the Utica shale.  Low gas prices matter here.  As far as coal, it produced 14.7 million tons of coal in the last quarter.  Margins may have risen with pricing but Consol is a hybrid that is still being evaluated as part-coal, part-gas.  Shares seem to have underperformed if you just look at the chart, but Consol’s stock has risen about 25% since the August lows.

Alpha Natural Resources (NYSE: ANR) trades close to $47.00 with a $5.6 billion market cap and the 52-week range here is $32.00 to $55.70.  Earnings are due in early November and Thomson Reuters has estimates of $0.80 EPS and $987.4 million.  For the year, those estimates are $3.06 EPS and $3.94 billion in revenues, and that is expected to jump to $4.70 EPS and $4.37 billion in revenue in 2011.

The Appalachian metallurgical and diversified coal producer  is technically one of the newer coal players, but it is diverse.  The stock has risen from under $35.00 to $47 from the summer lows for close to a 40% gain.  Shares were also at a low of close to $35 in August.

If you want a comparison of how these all stack up against each other, there is the great coal miner ETF.  The Market Vectors Coal ETF (NYSE: KOL) trades close to $41 today and the 52-week trading range is $28.35 to $41.55.  The assets are still relatively small but all the components mentioned are large weightings in the ETF.  Shares were under $30 at the summer lows and that makes for gains of more than one-third.  Shares were also around $32 at the lows of August, so the stock is up over 25% since then.

The big question that lies ahead is whether these often environmentally hated players can keep up with the moves that have already been factored in.  The guessing game is going to be around 2011 where all the big earnings growth is expected.  Now there is the currency game going on to boot.  If these companies can live up to those expectations then the shares are not overly expensive even after the large gains seen.  The flip-side of the equation is that any hesitance, and talking-down,  or any caution noted for 2011 will likely give traders the idea that they better take profits immediately.  Massey remains a wild card because of its history now, and we already know all of these have run from lows.

JON C.  OGG