Goldman Sachs Selectively Starts Seeing Coal Stocks to Buy

Commodities & Metals

Published: September 27, 2013 8:30 am

How does upgrading the coal sector sound for a gutsy analyst call? That is exactly what we are seeing on Friday from Goldman Sachs, although the upgrades are not exactly universal in the sector. We have seen some very positive outlooks from Goldman Sachs for the battered coal sector, followed by some cautions takes.

Alpha Natural Resources Inc. (NYSE: ANR) was raised to Neutral from Sell, and its price target was raised to $6 from $4 in the call. Unfortunately, this steam and metallurgical coal player’s closing bell price of $6.27 is above the Neutral-zone target. Thomson Reuters has a consensus price target of $7.17 here.

CONSOL Energy Inc. (NYSE: CNX) was raised to Buy from Neutral, and its price target was raised to $43 from $35. Shares closed at $33.77 on Thursday, and the 52-week range is $26.25 to $37.39. The consensus price target was $42.33 before this upgrade.

SunCoke Energy Inc. (NYSE: SXC) was started with a Buy rating and given a $22 price target (versus a $16.77 close). SunCoke mines and produces coke and offers metallurgical and thermal coal for steel making.

Walter Energy Inc. (NYSE: WLT) has been battered and is into metallurgical coal for the steel industry, as well as thermal and industrial coal and other coal products. It also just raised $450 million in senior secured notes, which originally was going to be a $350 million offering. Goldman Sachs raised its rating to Neutral from Sell and raised its target to $15 from $10. This new target offers only modest upside from the $14.55 closing price, but note that the consensus analyst price target was $18 before this upgrade and raised target price.

Before you think the call was all positive, it is not. Arch Coal Inc. (NYSE: ACI) was downgraded to Sell from Neutral. Industry-leading Peabody Energy Corp. (NYSE: BTU) was given a mere Neutral rating, but it does have a $20 target, versus a $17.85 close. Cloud Peak Energy Inc. (NYSE: CLD) was downgraded to Neutral from Buy and given a $15 price target, versus a $15.20 closing price.

The coal sector remains shaky, but maybe the share prices have become so weak in many of these names that the negative bias and business pressures are priced in.

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