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CONSOL Energy Benefits from Focus on Gas Business

On Nov 18, we issued an updated research report on CONSOL Energy Inc. (CNX). CONSOL’s emphasis on natural gas assets has started to yield results with increasing revenue contribution coming from its gas division. However, dependence on a limited group of customers for bulk sales and inherent risks associated with underground mining are headwinds.

CONSOL Energy reported operating earnings of 9 cents per share for the third quarter of 2014, lagging the Zacks Consensus Estimate of 20 cents by 55%. The company’s revenues of $884.6 million fell short of the Zacks Consensus Estimate by 0.2%. However, CONSOL’s sales increased nearly 10.1% year over year, primarily due to thriving natural gas and natural gas liquid sales.

CONSOL’s current focus on natural gas production is justified given the increasing worldwide emphasis on clean burning fuels. The company aims to produce 235–245 billion cubic feet equivalents (Bcfe) in 2014, up from the previous projection of 225–235 Bcfe. CONSOL further targets 30% annual gas production growth in 2015 and 2016 taking 2014 as the base year.

CONSOL Energy’s decision to form an MLP, CONE Midstream Partners LP (CNNX), jointly with Noble Energy Inc. (NBL) will help the company to move its increasing production from the Marcellus shale.

Despite lowering its coal focus, nearly 55.7% of the total revenue in the first nine months of 2014 came in from the coal division. CONSOL Energy depends on a limited group of customers who purchase coal in bulk amounts. If the company fails to renew the expiring contracts on favorable terms given the rising concerns on emission, it could impact performance.

CONSOL Energy is principally an underground miner, with 94% of its coal production in 2013 coming from underground mines. Despite, adhering to safety measures, underground mines are exposed to a number of operational hazards.

CONSOL Energy currently has a Zacks Rank #4 (Sell). A Better-ranked stock in the space is SunCoke Energy (SXC). SunCoke Energy sports a Zacks Rank #1 (Strong Buy).

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