There are two energy segments that have seen more negative pressure than the rest; Exploration and Productions (E&P), and coal. The declining oil prices have made it more and more difficult for E&P companies over the past several months, and U.S. coal production was down 32.7% year over year for the week ending January 2, 2016. Unfortunately, there is one company that serves both segments, Consol Energy (CNX), and is the Zacks Bear of the Day.
This Zacks Rank #5 (Strong Sell) is an integrated energy company operated through two primary divisions, oil and gas exploration and production (E&P) and coal mining. The E&P division is focused on Appalachian area natural gas and liquids activities, including production, gathering, processing and acquisition of natural gas properties in the Appalachian Basin. The coal division is focused on the extraction and preparation of coal, also in the Appalachian Basin.
Both oil and coal are going through similar difficulties; oil prices dipping below $30 with inventories at 80 year highs, and coal prices declining with inventories +13.6% above the 10 year average. Further, the utilization of coal for power generation declined -25.2% YoY, and was down -3.7% against the 10 year average. Further, there seems to be zero respite for these energy prices in the near or mid-term.
In the company’s most recent earnings announcement, Consol posted their second consecutive earnings miss with a -410% decline YoY. Also, the ever important metric, cash flow from operations, declined -62.5% from the year ago quarter. Further, the company posted an adjusted net loss of $64 million for the third quarter 2015.
As you can see from the graph below, Consol Energy has seen their stock price and estimate consensuses decline over the past year.
Due to the declining oil and coal prices, earnings estimates over the past 60 days have been reduced for Q4 15, Q1 16, FY 15 and FY 16. Q4 15 fell from $0.02 to -$0.04, Q1 16 dropped from $0.05 to -$0.03, FY 15 slipped from -$0.18 to -$0.21, and FY 16 plummeted from $0.24 to $0.05.
Bottom Line
With oil and coal prices under significant pressure for the foreseeable future, it would be wise to stay away from E&P, and coal centric companies.
If you are inclined to invest in the Coal industry, you would be best served to look into
Cloud Peak Energy (CLD), which currently carries a Zacks Rank #2 (Buy).
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