Market Overview

Short Interest in Alpha Natural and Walter Energy Continues to Rise

Short Interest in Alpha Natural and Walter Energy Continues to Rise

The largest percentage upswings in short interest in coal-related stocks between the April 30 and May 15 settlement dates happened to Alliance Holdings (NASDAQ: AHGP), Alpha Natural Resources (NYSE: ANR), Walter Energy (NYSE: WLT).

Below we take a quick look at how these three stocks have fared and what analysts expect from them.

The number of shares sold short in Cloud Peak Energy (NYSE: CLD), CONSOL Energy (NYSE: CNX), Peabody Energy (NYSE: BTU) and Yanzhou Coal Mining (NYSE: YZC) also grew somewhat in the period.

However, short interest Alliance Resource Partners (NASDAQ: ARLP) and Rhino Resource Partners (NYSE: RNO) declined more than 18 percent, while short interest in Arch Coal (NYSE: ACI), James River Coal (NASDAQ: JRCC), SunCoke Energy (NYSE: SXC) and Westmoreland Coal (NASDAQ: WLB) fell more modestly.

Alliance Holdings

Shares sold short in this producer of coal primarily for utilities and industrial users increased more than 30 percent to more than 218,000, on top of an 18 percent rise in the previous period. The days to cover was about two. The short interest at mid-month was more than one percent of the total float.

This Tulsa, Oklahoma-based company has a market capitalization of about $3.8 billion and a dividend yield near 4.7 percent. It posted better-than-expected results for the most recent quarter. The long-term earnings per share (EPS) growth forecast is about 14 percent. The return on equity is more than 47 percent.

Only about four analysts who follow the stock were surveyed by Thomson/First Call, and the consensus recommendation is to hold shares. The share price has overrun the analysts' mean price target. Until individual price objectives are raised, the consensus is that there is no upside potential at this time.

The share price hit a new multiyear high last week and is currently about 33 percent higher than at the beginning of the year. Over the past six months, the stock has outperformed competitors Arch Coal and Peabody Energy, as well as the Dow Jones Industrial Average.

Alpha Natural Resources

Short interest in this Virginia-based company increased more than 20 percent in the period to about 39.72 million shares. The number of shares sold short has been rising since the end of March, and as of May 15 represented more than 18 percent of the company's float. Days to cover was more than two.

The metallurgical coal producer posted a wider net loss for the first quarter, though the loss was smaller than analysts had expected. Alpha Natural Resources has a market cap near $1.5 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 surveyed analysts 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 more than 31 percent higher than the current share price. However, that target is less than the 52-week high reached about a year ago.

Shares have traded near $7 since mid-April, but the share price is down about 39 percent from a year ago. However, the stock has outperformed those of competitors Arch Coal and Peabody Energy over the past six months, even though it underperformed the broader markets.

Walter Energy

This Birmingham, Alabama-based producer and exporter of metallurgical coal for the steel industry saw short interest jump more than 24 percent in early May to about 14.97 million shares. That was about 24 percent of the float and the largest number of shares sold short in the past year. The days to cover was about two.

Walter Energy reported a smaller-than-expected net loss for the first quarter, and two directors bought 55,000 shares. The company currently has a market cap of more than $1 billion and offers a dividend yield of about 2.7 percent. Here too the operating margin and the return on equity are both in the red.

Again the consensus recommend is to hold shares, though 10 of the 24 polled analysts recently recommended buying. The analysts' mean price target suggests more than 40 percent potential upside relative to the current share price. That target is much less than the 52-week high, though.

The stock fell to a multiyear low in late April, and the share price is up more than five percent in the past month. Walter Energy has underperformed the likes of CONSOL Energy and Westmoreland Coal, as well as the broader markets, over the past six months.


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