Why Deutsche Bank Is Selling Consol Energy

• The share price of CONSOL Energy Inc. CNX has declined 77.334 percent year-to-date, touching a low of $6.66 on October 30.
• Deutsche Bank’s Jorge Beristain has downgraded the rating on the company from Hold to Sell, while lowering the price target from $13 to $6.
• Beristain believes that there could be further downside risk to the stock, given that the gas outlook could be weaker than expected, as well as CONSOL Energy’s “stressed” balance sheet.

Analyst Jorge Beristain mentioned that the company had highlighted while reporting its 3Q15 earnings that its near-term focus would remain on growing its E&P production, along with controlling expenses and “pragmatically managing balance sheet through asset monetization program.”

Management has guided to being free cash flow neutral in 4Q15 and becoming free cash flow positive in 2016, regardless of any potential dropdowns or asset sales.

While the first dry Utica Gaut 4I well in Westmoreland County has been completed in 2Q15, the company also stated that its well flow tests were progressing, “with Initial Production rate of 61.4MMcf/d.”

The GH9 well is scheduled for hydraulic fracturing in 4Q15, “and expected to be turned on-line in 1Q16,” the Deutsche Bank report said.

CONSOL Energy has also secured multi-year commitments from key power plants in the Southeast and Midwest regions.

The 2016-17 EBITDA estimates have been lowered to reflect Deutsche Bank’s lowered natural gas prices and lower coal realizations, “partially offset by higher natgas volumes and cost improvements.”