The company is structurally challenged given its high leverage ratios and low returns relative to other companies in their coverage, its leverage to analysts' cautious met coal price outlook, and its competitively disadvantaged assets, analysts said.
Therefore, analysts rated the shares "neutral" as these concerns appear reflected in shares with the stock having fallen by 85% over the last year.
Key risks include higher met coal prices, additional asset sales and better-than-expected cash costs, they noted.
Alpha Natural Resources and its operating subsidiaries are engaged in the business of extracting, processing and marketing coal from deep and surface mines, located in the Central and Northern Appalachian regions of the U.S.
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 multiple 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 poor profit margins, 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:
- The gross profit margin for ALPHA NATURAL RESOURCES INC is currently extremely low, coming in at 0.63%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 8.10% is above that of the industry average.
- Net operating cash flow has decreased to -$59.78 million or 10.79% when compared to the same quarter last year. Despite a decrease in cash flow ALPHA NATURAL RESOURCES INC is still fairing well by exceeding its industry average cash flow growth rate of -53.17%.
- 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 84.64%, 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 1.09 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 1.27, demonstrating the ability to handle short-term liquidity needs.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. 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