Alliance Resource Partners, L.P. (ARLP), Walter Energy, Inc. (WLT): Buy This Coal Producer Yielding 6.7% With 47% Upside

Alliance Has it All: Yield, Margins, Growth…

Not only does Alliance Resource Partners, L.P. (NASDAQ:ARLP) have by far the highest yield of any coal producer, it also happens to have the strongest financial metrics. It has production growth, (peers are shrinking), the best margins, the lowest debt leverage and operates in the two best situated coal regions. By prudently contracting coal sales far into the future, Alliance Resource Partners, L.P. (NASDAQ:ARLP) is now less exposed to the plunge in coal prices over the past 12-18 months.

While peers are cutting back production and suffering greatly from lower pricing and higher unit costs, Alliance Resource Partners, L.P. (NASDAQ:ARLP)’s contracting strategy gives it good visibility well into 2015. That is why Alliance is increasing production this year and possibly next. In addition, since it operates in the most attractive coal basins, it’s building new mines with the newest and most efficient technologies.

Conclusion

Next year could hardly be worse for coal producers, but moderate improvement may not be enough to turn companies like Walter Energy, Inc. (NYSE:WLT), Teck, Alpha Natural Resources, Inc. (NYSE:ANR) and Arch Coal Inc (NYSE:ACI) around. These companies will likely survive, but could be zombies for a long time. Alliance Resources Partners offers a far superior proposition: a robustly growing distribution on an already high current yield of 6.6%, with the possibility of significant capital appreciation.

Peter Epstein owns units of Alliance Resource Partners, L.P.. The Motley Fool recommends Alliance Resource Partners, L.P.. Peter is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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