NEW YORK (AP) ¿ The coal mining sector will struggle under constrained volumes for the rest of the year, but should rebound in 2010 on a strong price recovery, said an analyst on Thursday who reiterated his "Buy" rating for a number of coal stocks. Stifel Nicolaus & Co analyst Paul Forward predicted dismal second-quarter and full-year results driven by lower shipping volumes and the fact that most firms have the majority of their planned coal production committed, leaving few opportunities to gain from price strengthening. Demand for all types of coal has continued to remain very weak, but the sector has responded quickly by cutting domestic coal production, a move that could prompt an eventual recovery in coal pricing, Forward said. Forward expects a strong rebound in prices in 2010 and 2011, led by coal from the Appalachians due to its exposure to export markets, with other regions trailing behind. He reiterated his "Buy" rating for Consol Energy Inc., Peabody Energy Corp., Massey Energy Co. and Foundation Coal Holdings Inc., with price targets of $40.16, $34.01, $22.18 and $28.45, respectively.
Shares of Consol rose 82 cents, or 2 percent, to $41.02 in Thursday morning trading. Peabody shares climbed 60 cents to $34.61. Shares of Massey Energy jumped $1.13, or 5.1 percent, to $23.30. Foundation Coal shares gained 53 cents to $28.98. On Wednesday Consol cut its 2009 production guidance due to weak demand. The Canonsburg, Pa.-based company said it now expects to produce 60 million tons of coal this year, down from 62 million. Consol says production is being reduced at its Blacksville No. 2 mine in northern West Virginia. The mine's longwall ¿ a high-efficiency mining machine ¿ was idled Tuesday and will remain out of service through July 18. Consol earlier said it was idling a mine in eastern Kentucky and another in southern West Virginia July 1. The company says it plans to resume production at its Buchanan mine in southwestern Virginia in mid-July. Based on these production cuts, Dahlman Rose analyst Daniel Scott lowered his forecast for the company's next three years, but reiterated a "Buy" rating. Scott now expects earnings before interest, taxes, depreciation and amortization at $1.29 billion, $1.48 billion and $1.48 billion for 2009, 2010 and 2011, respectively, down from $1.39 billion, $1.49 billion and $1.97 billion. Analysts polled by Thomson Reuters predict, on average, EBITDA of $1.53 billion, $1.52 billion and $1.85 billion, respectively. The company has not provided its EBITDA outlook. Scott cut his price target for the company to $47 from $48.
Elsewhere in the sector share of Walter Energy Inc. rose $1.06, or 3.3 percent, to $32.23. James River Coal Co. shares added 52 cents, or 2.4 percent, to $22.23. Arch Coal Inc. shares gained 77 cents or 4.3 percent, to $18.56.