The Virginia-based supplier and exporter of metallurgical coals for use in the steel-making process is hampered by a debt load and the collapse in global metallurgical coal prices, analysts said.
"The debt load created by the ICG acquisition, coupled with the subsequent collapse in global metallurgical coal prices, leaves Alpha with very little equity value, in our view, unless global metallurgical and/or eastern U.S. thermal coal prices increase significantly," analysts said.
"We expect the core cash burn to increase in 2015, as higher interest expenses and capex bump into lower EBITDA," analysts said, adding, "But, for those investors of the opinion that metallurgical and/or thermal coal prices will recover faster and/or more significantly than our base-case assumption, Alpha represents a highly leveraged (both operationally and financially) investment vehicle."
Shares of Alpha Natural Resources closed up 0.38% to $2.61 yesterday.
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 some concerns, 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 disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and generally high debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness 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.
- Net operating cash flow has significantly decreased to $34.30 million or 69.12% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- ANR's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 69.53%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last 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 debt-to-equity ratio of 1.17 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, ANR's quick ratio is somewhat strong at 1.33, demonstrating the ability to handle short-term liquidity needs.
- ANR, with its decline in revenue, slightly underperformed the industry average of 6.4%. Since the same quarter one year prior, revenues fell by 11.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: ANR Ratings Report