We’ve all heard of strip mining. Well UBS stripped the majority of the coal companies it covers, including Walter Energy (WLT) and Alpha Natural Resources (ANR), of their Buy ratings today.
Other impacted stocks include Consol Energy (CNX), Peabody Energy (BTU) and Arch Coal (ACI).
Agence France-Presse/Getty Images UBS analyst Kuni Chen explains the reason for the mass downgrades:
We expect met coal fundamentals to remain challenged and see downside risk to Street met coal forecasts. In general, we see a "muddle through" scenario for the year ahead as coal companies have cut capital spending to maintenance levels and are primarily focused on preserving/enhancing liquidity…
We do not recommend investors buy met coal levered names like [Alpha Natural Resources, Arch Coal and Walter Energy] at this time. Fundamentally, we are positive on [Peabody Energy and Consol Energy] but see both as fairly valued based on our valuation metrics and commodity price deck.
In terms of price targets, Walter Energy and Alpha Natural Resources took the biggest hits. Chen lowered the price target of Walter Energy to $8 from $25–he sees no “compelling reason to accumulate the shares”–while Alpha Natural Resources goes from $12 to $5 thanks to its “very levered balance sheet and…significant cash burn in 2014.”
Shares of Consol Energy have dropped 0.7% to $40.79 at 3:15 p.m. today, while Walter Energy has plunged 5.3% to $7.36, Peabody Energy has fallen 2.6% to $15.81, Arch Coal has declined 2.2% to $4.56 and Alpha Natural Resources is off 2% at $4.25.
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