Tags: Patriot | Coal | growth | PCX

Patriot Coal, Dented, Poised for Growth

By Constance Gustke   |   Tuesday, 20 Dec 2011 09:13 AM

Emerging countries crave energy to fuel growth. So they’re turning to cheaper sources such as coal, despite the clear need for more renewable energy. China is set to double its coal-fired power generation capacity by 2035 and India’s is set to skyrocket even higher, according to the U.S. Energy Information Administration. That means dented coal stocks such as Patriot Coal (PCX) could be poised for growth.

Long term, high demand for coal is welcome news. Coal company stock prices were hammered this year on fears of slowing global demand and competition from fuels such as natural gas. Patriot, which owns mines in Appalachia and the Illinois basin, was one casualty. Its price plummeted 51.4 percent. Even worse, analysts have panned Patriot Coal’s low operating margins.

However, low coal stock valuations now drive another boom: mergers. This hot trend is unlikely to slow, according to analysts. Patriot is a ripe takeover candidate, given its low stock price and coal assets.

Patriot Coal also benefits from higher coal prices. Third-quarter revenues rose 17.7 percent to $589.4 million versus $500.7 million a year ago. However, the company posted an earnings per share loss of 54 cents. Third-quarter performance was well below our expectations, said Patriot Coal CEO Mark Schroeder, who nevertheless saw “opportunities for increased profitability.”

Lots of holds

Patriot Coal has few fans. Of the 19 analysts followed by Thomson/First Call, only two have strong buy recommendations and four have buys, with 11 holds and two underperforms.

Deutsche Bank analysts have a buy rating, but the target price was lowered to $22. Closure of the Big Mountain thermal mine contributed to production shortfalls, analysts noted.

The company reports next on Jan. 19.

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Emerging countries crave energy to fuel growth. So they re turning to cheaper sources such as coal, despite the clear need for more renewable energy. China is set to double its coal-fired power generation capacity by 2035 and India s is set to skyrocket even higher,...
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2011-13-20
 

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