Massey Energy Takes Its Lumps

If I'm going to be right about a stock, I'd just as soon be right about the stocks that I like -- after all, everybody but the shorts are happy when a good story gets better. So although results have apparently justified some of my past skepticism on Massey Energy (NYSE: MEE  ) , I'm hardly overjoyed to see the stock trading lower.

The trouble with Massey has been, and continues to be, its ability to execute. Overall coal revenue rose just 1% this quarter, as stronger pricing helped offset a 12% drop in production tonnage. Making matters worse, cash operating costs per ton rose more than 23%, and the company reported that EBITDA fell 31% from last year's level.

Uninspiring production is bad enough, but the news doesn't get any better. Thanks to some production problems and idling of facilities, the company is lowering its production guidance for the year. It's not a massive drop (about 5%, depending upon which numbers you use), but it's not as though Massey has really been earning itself the benefit of the doubt lately.

Geography presents an enduring good news/bad news dichotomy for Massey. The good news is that Eastern coal is worth more (due to its higher energy content) and that's where its reserves are concentrated. The bad news is that the future seems to be in Western coal -- it's cleaner and it's generally cheaper for companies to operate out there. So while Massey's higher-than-average reserves of met-coal is a positive (this coal, used by companies like U.S. Steel (NYSE: X  ) or POSCO (NYSE: PKX  ) , carries a higher price), it would appear that most longer-term trends are against them.

When you consider the value of its reserves, Massey seems pretty cheap relative to its peers. But frankly, it's not so much cheaper than giant Peabody Energy (NYSE: BTU  ) or western specialist Arch Coal (NYSE: ACI  ) . Plus, there are other players like Foundation (NYSE: FCL  ) and Penn Virginia Resource Partners (NYSE: PVR  ) that continue to interest me more than Massey.

Coal may yet prove to be pausing in preparation for more long-term gains, but I'm not all that comfortable making a long-term bet on Massey -- even at these lower levels.

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Fool contributorStephen Simpsonhas no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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