Market Overview

Short Sellers Shy Away From Coal Stocks (ANR, CLD, WLT)

By and large, the short interest in the leading coal-related stocks declined between the July 31 and August 15 settlement dates.

Alpha Natural Resources (NYSE: ANR), Arch Coal (NYSE: ACI) and James River Coal (NASDAQ: JRCC) resisted that trend.

The number of shares sold short in Rhino Resource Partners (NYSE: RNO), SunCoke Energy (NYSE: SXC) and Walter Energy (NYSE: WLT) fell by eight percent or more in the period.

The short interest in Alliance Holdings (NASDAQ: AHGP), Alliance Resource Partners (NASDAQ: ARLP),Cloud Peak Energy (NYSE: CLD), CONSOL Energy (NYSE: CNX), Peabody Energy (NYSE: BTU), Westmoreland Coal (NASDAQ: WLB) and Yanzhou Coal Mining (NYSE: YZC) declined more modestly.

Below we take a quick look at how Alpha Natural Resources, Arch Coal and James River Coal have fared and what analysts expect from them.

See also: Short Interest In Celgene, Onyx Continues To Shrink

Alpha Natural Resources

The short interest in this Virginia-based company increased more than six percent in the period to about 52.26 million shares, or about 24 percent of the float. That was the greatest number of shares sold short in the past year, after rising since mid-June. The days to cover dropped to less than four.

Early in August, this metallurgical coal producer posted a wider net loss for the second quarter. Alpha Natural Resources has a market capitalization or more than $1 billion, but it does not offer a dividend. Note that the company's operating margin and its return on equity are both in negative territory.

The consensus recommendation of the analysts surveyed by Thomson/First Call is to hold the shares, and that has been so for at least three months. Their mean price target, or where analysts expect the share price to go, is about 17 percent higher than the current share price. However, that target is less than the 52-week high.

The share price is up about 10 percent year-to-date, though it is still about 36 percent lower than at the beginning of the year. The stock has underperformed not only the broader markets over the past six months, but also competitors Arch Coal and Peabody Energy.

Arch Coal

Short interest in this St. Louis-based company grew less than three percent in the period to 41.80 million shares. That was the greatest number of shares sold short so far this year, and it represents almost 20 percent of the company's float. Days to cover was more than four for the first time this year.

At the end of July, the second-largest U.S. coal producer posted a narrower-than-expected net loss for the second quarter. The company has a market cap of less than $1 billion and a dividend yield near 2.6 percent. The long-term earnings per share (EPS) growth forecast is only about five percent, though.

The consensus recommendation of the surveyed analysts is to hold the shares, and it has been for at least three months. Yet their mean price target is almost 12 percent higher than the current share price. However, that target is well below the 52-week high from last autumn.

The share price is up about 12 percent in the past month, though it is still more than 34 percent lower year-to-date. The stock has underperformed competitors such as CONSOL Energy and Peabody Energy, as well as the Dow Jones Industrial Average, over the past six months.

James River Coal

This Richmond, Virginia-based producer of metallurgical coal saw short interest creep up marginally in the period to about 28.93 million shares, or more than 23 percent of the float. Short interest has been inching upward since the end of May. Days to cover was more than five, but down from more than 11 in mid-July.

James River Coal posted a profit in the most recent quarter, but that was due largely to cost-cutting and a debt swap. The company currently has a market cap of only about $75 million. Note that the operating margin and the return on equity are both in the red, and so is the long-term EPS growth forecast.

Again the analysts' consensus recommend is to hold shares, with three of them rating the stock at Underperform and two at Buy. The analysts' mean price target suggests more than 12 percent potential upside relative to the current share price. That target is less than the 52-week high, though.

The stock rose about six percent in the past month. The share price is more than 37 percent lower than at the beginning of the year. James River Coal has underperformed the likes of Alpha Natural Resources and CONSOL Energy, as well as the broader markets, over the past six months.

See also: Short Sellers Gang Up On Marvell Technology

At the time of this writing, the author had no position in the mentioned equities.

Posted-In: Alliance Holdings Alliance Resource Partners alpha natural resources arch coal cloud peak energy consol energy james river coal Natural Resource Partners Peabody Energy Rhino Resource Partners SunCoke Energy walter energy Westmoreland Coal Yanzhou Coal MiningShort Ideas Trading Ideas Best of Benzinga

 

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