Billionaire Steve Cohen Buying More Coal at Walter Energy

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Other producers of thermal and metallurgical coal include Arch Coal Inc (NYSE:ACI), CONSOL Energy Inc. (NYSE:CNX), Peabody Energy Corporation (NYSE:BTU), and Alpha Natural Resources, Inc. (NYSE:ANR). Arch Coal and Alpha are actually forecasted to have negative profitability in 2014, and revenue at each of those companies was down about 20% in the fourth quarter of 2012 versus a year earlier (in addition to stock prices which have been cut in half). Alpha and Arch Coal are also particularly popular short targets, likely due to their perceived weakness even among coal companies in general. Peabody and CONSOL have had a more modest reaction to industry dynamics, though even in those cases revenue was down about 10% last quarter compared to the fourth quarter of 2011. CONSOL is actually profitable on a trailing basis, with a price-to-earnings multiple of 21, and though that is high the company is at least starting from positive earnings in the event of an industry wide recovery. In terms of forward earnings estimates these two stocks are priced about in line with Walter.

Coal companies are in too poor a situation to be value stocks at this time, and we are skeptical that the market for thermal coal will improve by much in the near future. Barring industry consolidation an investment thesis would therefore rely on a ramp-up in steel demand; even if we were convinced that macro conditions (particularly in China and other developing countries) were strong enough to support higher steel production we would at least want to look at miners of steel, copper, and other industrial materials to see if they are better options than the coal miners.

Disclosure: I own no shares of any stocks mentioned in this article.

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