Valuation
CONSOL Energy Inc. (NYSE:CNX) Energy is trading at a forward P/E of 14.12 and has a PEG ratio of 2.53. Incorporating a dividend yield of 1.6% into its PEG gives us a PEGY ratio of 2.06. According to the sell side estimates, it has a mean target price of $41, depicting the fact that it is an undervalued stock and has an upside potential of almost 28%. A mean recommendation of 2 on the sell side clearly suggests that it’s one of the top buys in its industry.
Industry’s major players
The American coal mining and processing giant, Arch Coal Inc (NYSE:ACI), is the second largest coal supplier in the United States. Arch Coal Inc (NYSE:ACI) has 21 mines, and enjoys a 16% share in the domestic market. Analysts expect Arch to report a net loss per share of $0.33 in the next quarter. For the full year, it’s expected to incur a loss of $1.15 per share, showing the company’s weak position. Arch Coal Inc (NYSE:ACI) has a mean recommendation of 2.7 on the sell side, depicting that it isn’t an attractive buy at this stage.
The largest private sector coal company in the world, Peabody Energy Corporation (NYSE:BTU) , engages in mining, sale, and distribution of coal. Last year, more than 46% of the company’s revenue came from its Australian mines. This year, Peabody Energy Corporation (NYSE:BTU) has plans of investing more in Australia, where high met-coal prices and low production costs are expected to generate significant profit for the company. Peabody Energy Corporation (NYSE:BTU) is trading at a forward P/E of 10.71 and has a dividend yield of 1.60%. A mean recommendation of 2.2 on the sell side makes Peabody Energy Corporation (NYSE:BTU) one of the most attractive buys in the industry.
Conclusion
As natural gas was cheaper than coal last year, power generating companies went for gas rather than coal. As a result, the coal industry suffered a major setback. However, CONSOL Energy Inc. (NYSE:CNX) Energy’s efficient use of its low cost coal mines ensured that it kept on generating healthy margins. Going forward, the company would sell most of its high cost coal mines. EIA’s forecast for low coal prices relative to natural gas means that the company’s thermal coal business would see an improvement in 2013 and 2014.
Unlike its peers, which have been reporting negative earnings lately, CONSOL Energy Inc. (NYSE:CNX) Energy has earned healthy margins. As the Chinese demand for metallurgical coal is expected to increase in 2012, met-coal prices are bound to go up. This means that the company is on track to mint healthier margins in the coming years. The bottom line is that CONSOL Energy is one of the most attractive buys in the energy sector, therefore, I definitely recommend buying it.
The article A Must Buy Energy Stock originally appeared on Fool.com and is written by Waqar Saif.
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