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Will This Downgrade Hurt Alpha Natural Resources (ANR) Stock Today?

NEW YORK (TheStreet) -- Alpha Natural Resources  (ANR) was downgraded to "sell" from "neutral" by analysts at UBS AG (UBS).

The firm also lowered its price target for the shares to $3 from $5.

Alpha Natural Resources is down 2.0% to $4.78 in pre-market trading Wednesday.

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The downgrade follows analysts concerns of a bleak forecast for the met coal sector.

"Our Sell rating is valuation driven, given the sharp downgrade to met coal forecasts by our Commodity Team. While Alpha's eastern thermal realizations are expected to approach $70/ton by 2016-17 based on a $5/mmBtu gas price, our EBITDA forecast in 2015 is 53% below the Street," UBS said.

"The cut to our met coal price deck reflects a larger oversupply view despite our model assuming 9 metric tons of US production cuts this year. In addition, the latest benchmark settlement of $120 per metric ton was lower than expected and down 16% from $143 per metric ton in the first quarter," analysts reported. 

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Separately, TheStreet Ratings team rates ALPHA NATURAL RESOURCES INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate ALPHA NATURAL RESOURCES INC (ANR) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 181.2% when compared to the same quarter one year ago, falling from -$127.58 million to -$358.79 million.
  • The gross profit margin for ALPHA NATURAL RESOURCES INC is currently extremely low, coming in at 8.29%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -32.80% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$69.56 million or 132.69% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 39.95%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 179.31% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ALPHA NATURAL RESOURCES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: ANR Ratings Report
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