CONSOL Energy Inc.is weathering weak domestic demand for coal by increasing exports through Baltimore,according to FBR & Co., which maintained an "outperform" rating forthe coal and natural gas company.
FBR & Co. analystLucas Pipes wrote in a May 3 report that while Northern Appalachian coalproducers have a "challenging" outlook due to high stockpiles and regionalgas prices, "we believe that the region has upside to improved market conditionsand export optionality, as evidenced in [the first quarter] when CONSOL was ableto offset weaker domestic demand with increased exports through Baltimore."Pipes said that the export access helps to absorb fixed costs and increase overallmargins.
FBR first gave CONSOLan "outperform" rating when they assumedcoverage of CONSOL on Feb. 26. In the recent report they maintained this ratingas well as a 12-month price target of $21 per share.
In the recent report,Pipes said that CONSOL remains on FBR's Alpha Generator List. He highlighted thecompany's ability to lower exploration and production costs, particularly in thecompany's natural gas assets in the dry Utica shale region where he said managementindicated operating costs could be more than 50% below average. He also said thatestimated gas prices, currently at $2.73/Mcf, are "substantially below currentfuture prices" and "dramatically reduces the lingering balance sheet concerns"of the company.
Pipes said the notewas made to address key investor questions following the company's recent strongshare price performance and to update his estimates following of CONSOL's first-quarter results.
"[CONSOL] isattractively valued for an exceptional basket of low-cost energy assets, includingtop-tier Marcellus and Utica E&P assets, and best-in-class Northern Appalachian(NAPP) thermal coal. The company has been able to lower production costs substantially,and especially in the dry Utica, we believe that the full potential for furtherefficiency gains is not appreciated by investors," Pipes wrote.