When Goldman Sachs talks, people listen. So it’s odd to see Goldman upgrade Consol Energy (CNX) and for the coal miner to fall today. Even odder: Three coal stocks that were on the receiving end of price target cuts–Alpha Natural Resources (ANR), Arch Coal (ACI) and Walter Energy (WLT)–have gained. At least Peabody Energy (BTU), which Goldman cut, is falling.
Getty Images Goldman Sachs analysts Neil Mehta and Vinit Joshi explain why they upgraded Consol Energy…
Consol Energy trades at a deep discount to our [sum-of-the-parts] value, driving our upgrade from Neutral to Buy. We see four pillars to our positive view on the company: (1) improving free cash flow at the coal segment, (2) a major E&P production ramp, (3) potential for asset sales/restructuring and (4) a strong balance sheet. We raise our 6-month SOTP-based price target from $49 to $55.
…and cut their rating on Peabody Energy:
We downgrade Peabody Energy from Buy to Neutral as we now see 1% upside to our new target price of $16 versus 7% average return for the sector. We lower our EV/EBITDA-based target from $21 to $16 driven by (1) a reduced international coal (Newcastle) price outlook, consistent with our Commodities Research colleagues, (2) higher differentials versus spot met coal prices and (3) a lower met coal price view used in our valuation from $165/MT to $160/MT.
Peabody wasn’t alone in getting the stink palm. Mehta and Joshi also cut their price targets on Alpha Natural Resources, Arch Coal and Walter Energy due to their exposure to weak met-coal prices. Alpha Natural’s price target goes to $3 from $3.50; Walter’s goes to $3 from $5; and Arch Coal’s goes to $4 from $4.50.
Shares of Consol Energy have dipped 0.3% to $47.25 at 2:13 p.m., while Peabody Energy has fallen 1.3% to $16.37, Alpha Natural Resources has gained 1.8% to $3.42, Arch Coal has jumped 3.7% to $3.54 and Walter Energy has risen 0.6% to $4.54.
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