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Experts: Coal prices a drag on Consol stock

On the Grid

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Coal down, gas up

Stock price performance of Consol and its peers since October 2011:

Alpha Natural Resources Inc. (ANR): -62.4%

Arch Coal Inc. (ACI): -67%

Consol Energy Inc. (CNX): -3.9%

EQT Corp. (EQT): +32.3%

Range Resources Corp. (RRC): +21.6%

Source: Tribune Review research

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By Timothy Puko
Wednesday, May 8, 2013, 1:00 p.m.
 

On radio ads across the region, Consol Energy Inc. has sold itself as a financial adviser's dream: “diversify ... diversify ... diversify.”

It's a message that has not yet paid off on Wall Street.

The Cecil-based company's stock has festered around $35 a share for the past 12 months, down from about $50 less than two years ago, despite steady profits from becoming a successful “diversified energy company” — selling both coal and natural gas. The problem is that with coal prices low — and gas prices not doing much better — that diversity can also be a curse, analysts said on Wednesday.

“Even if they do everything right in the gas business, if coal is lagging, their stock price is going to lag, too,” said Brandon Blossman, an analyst at Tudor, Pickering, Holt & Co. in Houston. “You can easily make an argument that it should be valued higher. But the dissonance here is perhaps as much a function of where we are in the commodity cycle than on this particular company.”

CEO J. Brett Harvey spent part of the company's annual meeting on Wednesday in Findlay trying to explain that to shareholders, saying commodity prices are holding the company back. Blossman is one of several analysts who agree with Harvey on that — not only about the hurt from commodity prices — but about great strides the company has made, and that its share price could soon be on the rise.

Of 22 analysts following the company, 18 rated it as a buy, according to Bloomberg. Their average target price is about $42 a share.

Consol is trying to get attention by becoming more of a gas company, Harvey told reporters after the meeting. It's trying to sell assets — primarily its waterway shipping and pipeline transportation businesses — to help fund 121 new wells this year. Investors see coal companies as stagnant and gas companies as growth companies, he said.

“As we grow bigger into gas, I think you'll see us grow more like the gas guys,” he said, touting the fact that the company has grown in recent years despite a stagnant economy. “We're a much bigger company than we were before. And I don't think the market's realized that.”

Those efforts may not be enough to convince investors, Blossman said. The company is still primarily a coal company and selling off a few assets or drilling a few wells won't help it tip that balance from its legacy, he added.

It's good strategy nonetheless, Blossman and other analysts said. The transportation assets are not valued by investors as they should be, and the growth potential of a gas business is highly valued, said Lucas Pipes, an analyst at Brean Capital LLC in New York.

“To the extent Consol can grow its natural gas business, I think investors would appreciate that signal,” Pipes said.

The company has had earnings struggles this year, in large part because of its coal business.

Consol lost $1.6 million, or 1 cent a share, in the first three months of 2013. A fire at the Blacksville No. 2 Mine on the Pennsylvania-West Virginia border played a large role in that, halting mining and costing $15.2 million to extinguish.

A federal official said on Wednesday that mine could reopen for production as soon as next week. Consol workers finished sealing the fire-damaged areas on Tuesday, Harvey said. It will take seven days for the seals to set, Consol spokeswoman Lynn Seay said.

As soon as federal officials confirm that, they will allow Consol to reopen the mine, said Amy Louviere, spokeswoman at the Mine Safety and Health Administration.

Timothy Puko is a Trib Total Media staff writer. Reach him at 412-320-7991 or tpuko@tribweb.com.

 

 
 


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