CONSOL Energy Inc. (CNX): A Must Buy Energy Stock – Peabody Energy Corporation (BTU), Arch Coal Inc (ACI)

The American energy company, CONSOL Energy Inc. (NYSE:CNX), produces coal and natural gas for the purpose of power generation and steel making. It is not only the largest producer of underground coal in the United States, but also the top producer of high BTU bituminous coal in the country.

Quarterly earnings

In the fourth quarter of 2012, CONSOL Energy Inc. (NYSE:CNX) beat estimates and reported earningsof $150 million, or $0.43 per share, while analysts were expecting earnings per share of $0.24. Net income fell 23% to $150 million, whereas revenue fell 10% to $1.39 billion.

Cost per ton sold fell 8% to $48.21. The core reasons behind lower than expected costs included closing down of the high cost Fola mine in West Virginia, less overtime, and lesser maintenance projects. Net income slipped in the fourth quarter amid low met-coal prices, mainly due to lesser demand in Europe and China.

In 2012, the company sold $350 million worth of non-core coal assets in the U.S. and Canada. The company generated a pre-tax profit of $90 million from selling such mines in the fourth quarter. As low gas prices offset volume increase, CONSOL Energy Inc. (NYSE:CNX)’s gas division reported net income of $9 million, almost flat from the earlier quarter.

What’s in store for 2013-2014?

In order to reduce costs further, CONSOL Energy Inc. (NYSE:CNX) Energy has plans of selling its high cost coal mines in 2013 as well.  According to the company, its costs at BMX mine in Western Pennsylvania are gradually decreasing, and will have the lowest cost per ton in 2014.  In 2013, the company has plans of investing $835 million-$935 million in natural gas wells. In the first quarter of 2013, analysts expect the company to earn $0.18 per share on revenue of $1.25 billion.

For the full year, analysts estimate CONSOL Energy Inc. (NYSE:CNX) to earn $1.06 per share on revenue of $5.12 billion. 2014 estimates look really promising as the company is expected to earn $2.17 per share on total revenue of $5.89 billion.

U.S. energy outlook

According to the U.S. Energy Information Administration (EIA), record warm temperatures in 2012 were the chief reason behind low natural gas prices. As a result, energy companies shifted to natural gas instead of coal for power generation purposes. Given the fact that 2013 and 2014 are expected to have average winter temperatures, natural gas prices would see a slightly upward trend. Moreover, lesser coal demand in 2012 means high coal inventories on hand for 2013, putting a downward pressure on coal prices. Hence, thermal coal’s demand is expected to rise in the coming years.

(Source: www.EIA.org)