Balanced View on Natural Resource Partners - Analyst Blog

On March 20, we have issued an updated research report on Natural Resource Partners LP NRP. The coal reserves and coal handling and transportation infrastructure owner is following a steady oil and gas assets acquisition strategy. However, stringent environmental regulations and over-reliance on a few customers for royalty revenues may cast shadow on the future performance.

In fourth-quarter and full-year 2013, Natural Resource Partners' earnings per unit and revenues surpassed the Zacks Consensus Estimate. However, quarterly top and bottom line edged down from the year-ago figure, primarily due to lower coal production volumes. A rise in total operating expenses, interest expenses and units outstanding led to a drop in annual earnings.

Natural Resource Partners, a Zacks Rank #3 (Hold) stock, is committed to expand its core as well as non-core operations in the mineral-rich territories in the U.S.

As per a World Steel Association report, the use of steel is expected to increase in 2014, primarily due to improvement in automotive, energy and construction sectors in the U.S., China, India, the Middle East and North African region and several other countries. An increase in coal demand may propel the lessees of coal reserves owned by Natural Resource Partners to increase production volume, thereby boosting future coal royalty revenues of the partnership.

Currently, Natural Resource Partners is diversifying its asset base and is focusing more on oil and gas properties. In 2013, the partnership has completed several acquisitions, including non-operated working interests in oil and gas properties in the Williston Basin. This initiative will enable the partnership to extend its revenue streams.

However, we are concerned about Natural Resource Partners' initiative to curtail the quarterly cash distribution rate. This may brunt the partnership's image, thereby failing to attract more investors' attention on the stock.

Key Picks from the Sector

Other better-ranked stocks in this sector include Rhino Resource Partners LP RNO, Range Resources Corp. RRC and Oxford Resource Partners, L.P. OXF. While Rhino Resource Partners and Range Resources carry a Zacks Rank #1(Strong Buy), Oxford Resource Partners holds a Zacks Rank #2 (Buy).