NEW YORK (TheStreet) -- The 2010 outlook for U.S. based coal producers James River Coal (JRCC) and Walter Energy (WLT) has improved to a positive undertone over other U.S. based coal producers, lifted by factors such as robust company outlook, comparison multiples and recent stock performance.

James River Coal mines, processes and sells bituminous, steam and industrial-grade coal through six operating subsidiaries located throughout eastern Kentucky and in southern Indiana. Walter Energy is a producer and exporter of metallurgical coal for the world steel industry and also produces steam coal, metallurgical coke and other related products.

Currently, James River and Walter Energy have attractive EV to EBITDA ratios of 3.19, and 4.59 respectively over Peabody Energy's ( BTU - Get Report) 6.42, Consol Energy's ( CNX - Get Report) 4.66, and Alpha Natural Resources' ( ANR), 4.64.

James River Coal

As on March 31, 2010, the company has $153.1 million of cash accounting for 21.9% of the total assets, the percentage among the highest in the metals and mining sector. Essentially, this substantial liquidity balance will likely drive growth opportunities for the company.

James River leads major coal producers with a return-on-equity of 43.2% for the past 12 months, in comparison to Consol Energy's 33.2%, Walter Energy's 30.8, and Peabody's 13.1%.

Commenting on the first quarter results, Chairman and CEO Peter Socha said "With regard to the coal markets, we are beginning to see clear signs of a recovery from recession levels. We will continue to be patient with our contracting strategy. We believe that James River Coal Company is well positioned for a sustained period of profitability."

Capitalizing on the current market environment, the company is expected to report earnings of $2.81 per share during 2010, in comparison to the earnings of $1.85 per share for 2009. Currently, the stock has seven buy, three hold and no sell ratings, according to TheStreet's Analyst ratings guide.

Walter Energy

The company reported a strong first quarter as the recovery in both the domestic and international steel industries was the positive catalyst that increased the demand for coking coal.

The company has settled coking coal contracts totaling 1.7 million tons with prices at around $235 a ton for the six-month period beginning April 1. "Looking forward, Walter Energy expects to generate increased earnings for the second quarter following our recent coking coal settlements," said the company's interim CEO Joe Leonard on April 28.

Earnings are anticipated to increase in the upcoming quarters on the back of settled coking coal contracts. According to analysts polled by Bloomberg, James River Coal is set to report earnings of $9.08 per share for 2010 and $11.65 per share for 2011, compared to earnings of $2.64 a share during 2009.

However, the stock declined 24.9% during the past one month, implying that substantial selloffs provide an attractive buying opportunity.

Currently, the stock has eleven buy, five hold and no sell ratings, according to TheStreet's Analyst ratings guide.

Year-to-date, James River and Walter Energy declined by 14.8% and 5.1%, in comparison with the declines of 17.3%, 28.7%, 17.4%, and 25.9% for Peabody, Consol Energy, Alpha Natural Resources, and Massey Energy ( MEE), respectively.

In contrast, the year-to-date gains for Patriot Coal ( PCX), International Coal Group ( ICO), and Westmoreland Coal ( WLB) were 1.0%, 1.3%, and 19.2% respectively.

Industry Outlook

Rising coal demand in Asian markets, and supply shortages in Australia and South Africa will likely keep the international and domestic coal prices higher during 2010, contrasted to the prices during 2009. Currently, coal FOB Richard Bay prices are around $88.5 per MT. Average coal prices during the fourth quarter of 2010 are expected to increase 1.01% to reach $90.1 per MT, according to analysts polled by Bloomberg.

Increasing demand from the electric power sector is expected to raise U.S. coal consumption of 1,000.4 million short tons in 2009 by 3.9% in 2010, and 2.9% in 2011. However, production is anticipated to decline by 3% during 2010 and significant inventory levels will likely fulfill the demand growth.

U.S. coal imports are expected to decline by 4% during 2010, as inventory drawdown will likely satisfy increasing consumption. Imports will likely grow by 19% in 2011 on increased demand for coal, according to U.S. Energy Information Administration. This situation implies that most of the U.S. based coal producers will be operating at their full capacity and production expansion will significantly boost their earnings.

Global coal demand is expected to increase by around 3% this year, a turnaround from a decline of 0.3% in 2009. Currently, Asian utilities are boosting coal purchases to meet increased demand for electricity. For instance, Huaneng Power International ( HNP), China's largest power producer, produced 38% more electricity during the first quarter of 2010, relative to 2009.

During the first quarter, China imported 48 million tons of coal, and during 2010, the total imports are slated to reach 200 million tons, positioning China as the largest net coal importer. India's coal imports are expected to boost by 75% in 2010 to 35 million tons.

On the supply side, Australian thermal coal exports hit the lowest level in over two years, attributable to the disruption at the Hunter Valley rail. Exacerbating the crisis, Australian government's mining super tax will likely halt investments, and reduce overall coal output. In South Africa, a key supplier to Europe and India, a possible strike at Richards Bay will diminish coal production. In Asia, the Indonesian government has a target to increase electricity capacity by 15,000 MW by 2014, thereby increasing domestic coal consumption and declining exports. Currently, Indonesia is the world's largest coal producer with an annual production capacity exceeding 250 million tons.

In addition to rising demand and declining production, Somali pirates have stepped up attacks on coal shipments in the Indian Ocean and Gulf of Aden, increasing the insurance premiums, supply shortages and ultimately the world coal prices.
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