Billionaire David Einhorn, Smart Money Buying Up Shares Of CONSOL Energy Inc. (CNX)

While an asset impairment charge will decrease EPS and lower book value, an asset impairment charge is not operationally negative because it is not a cash expense. If energy prices recover, Consol’s assets will be marked up again. Consol Energy’s Q2 loss from operations is more concerning. A loss from operations means that Consol Energy is bleeding cash. While Consol Energy isn’t as leveraged as Chesapeake Energy Corporation (NYSE:CHK) and Southwestern Energy Company (NYSE:SWN) are, the cash bleed means that Consol Energy has a finite lifeline before its liquidity runs out. Fortunately, Consol’s management hopes to address this issue by outlining a plan for the company to become free cash flow positive over the next 18 months. As long as the company is cash flow positive, Consol Energy will be in business.

Although it is a falling knife, we believe that Consol Energy is a good long-term holding. We are bullish on natural gas in the long run, as LNG exports will increase demand and industry capital expenditure cuts will reduce supply. If natural gas prices rise to $4-$7 per mcf, Consol Energy will be a fantastic stock to own at current price levels.

We like how the smart money is adding as well. David Einhorn is perhaps the most astute investor in energy right now, having correctly called crude’s decline last year and the fracking decline this year. Given that he is bearish on many energy plays, it stands to reason that Einhorn’s bullish energy pick has strong investment merit.

One such strong investment merit could be a potential sale. According to news sources, Southeastern Asset is pushing CONSOL Energy Inc. (NYSE:CNX) to spin off or sell its natural gas business to unlock shareholder value. Southeastern Asset believes that a sale of the division could receive a bid that is more than Consol’s current market capitalization. Given the short float of over 11%, a sale or spin-off would generate a considerable short squeeze as well.

Disclosure: None