Its Christmas time and the analysts at Goldman Sachs have decided to leave a lump of coal in Consol Energy’s (CNX) stocking, even as they praise the coal company’s fundamentals.
Getty Images Goldman Sachs analysts Neil Mehta and Vinit Joshi started Consol Energy at Neutral in a report dated yesterday, while stating their preference for Peabody Energy (BTU) SunCoke Energy (SXC). Mehta and Joshi explain why they remain on the sidelines:
[We] forecast a 26% production growth CAGR from 2013-2016 from the E&P segment. As a result of the production ramp in the Marcellus/Utica and given recent asset sales, the E&P business should grow from just 31% of the EBITDA mix in 2013 to 54% by 2015. Second, the remaining coal assets – particularly, Bailey, BMX, Enlow Fork and Buchanan – should drive strong free cash flow, helping to fund the capex ramp at [Consol's] E&P segment…
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While positive on the fundamentals of [Consol], our Neutral rating reflects current valuation and fewer positive catalysts. After rallying 10% in the last month (versus the S&P +2%, KOL -2%), we see 10% total return to [Consol] versus 39% upside for [Peabody] and 16% for [SunCoke Energy]. Additionally, with the coal asset sales complete, we see no transformative restructuring catalysts to drive the stock higher in the near term.
Shares of Consol have gained 0.9% to $38.17 at 9:32 a.m., while Peabody has ticked up 0.1%to $18.24 and SunCoke Energy has risen 0.2% to $22.49.
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