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Morgan Stanley Sees 'Meaningful Upside' In Pair Of Coal Stocks

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  • Morgan Stanley has downgrades Peabody Energy Corporation (NYSE: BTU) and Cloud Peak Energy (NYSE: CLD) on liquidity concerns.
  • The firm has also lowered its projected coal prices and earnings estimates for coal stocks.
  • Morgan Stanley still sees “meaningful upside” for selective coal investors.

In a new report, Morgan Stanley analyst Evan Kurtz downgrades coal stocks Peabody Energy and Cloud Peak Energy and reduces the firm’s near-term earnings expectations for the coal industry. Despite the gloomy near-term outlook, Kurtz notes that patient value investors could be rewarded by a timely investment in coal.

Related Link: Morgan Stanley Sees Trouble In Coal Ahead, Downgrades Peabody And Cloud Peak

Buying Opportunity

For investors that are willing to wait and weather years of volatility, Morgan Stanley sees a long-term value opportunity for buyers of CONSOL Energy Inc. (NYSE: CNX) and Foresight Energy LP (NYSE: FELP).

“We see meaningful upside and attractive risk-reward for shares of CNX and FELP, on a new deck that is sufficiently conservative, in our view,” Kurtz explained.

Downgrades

Kurtz’s optimism does not extend to all coal names. Morgan Stanley has downgraded the stocks of Peabody and Cloud Peak from Overweight to Equal-Weight based on liquidity concerns. The firm believes that both names will require an uptick in coal prices to become free cash flow-positive.

Disclosure: the author holds no position in the stocks mentioned.

Latest Ratings for CNX

DateFirmActionFromTo
Jan 2017SunTrust Robinson HumphreyDowngradesBuyHold
Dec 2016Goldman SachsInitiates Coverage OnNeutral
Nov 2016KLR GroupUpgradesAccumulateBuy

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