The firm boosted its price targets on several coal stocks, noting that the long-term outlook for U.S. coal improved substantially following the outcome of the U.S. elections. In the near term, however, potential headwinds include lower natural gas prices and rising coal stockpile levels driven by higher production.
Based on a slowing long-term earnings decline, as well as lower cost of capital, FBR Capital boosted the valuations of a number of coal stocks.
Arch Coal is the firm’s favorite pick in the space because of its attractive exposure to the metallurgical coal market (which is used to make steel), low-cost operations, and solid cash flow generation potential throughout the impending economic cycle. However, FBR also lifted its price targets on the following stocks as well:
- Westmoreland Coal (WLB) target raised to $22 from $16.
- CNX Coal Resources LP (CNXC) target raised to $23 from $21.
- Alliance Resource (ARLP) target raised to $28 from $26.
- Arch Coal (ARCH) target raised to $94 from $90.
The Market Vectors-Coal ETF (NYSE:KOL) closed at $13.32 per share on Tuesday, up $0.41 (+3.18%). Year-to-date, KOL has gained 113.12%.