Why Alpha Natural Resources, Inc. Plunged

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Alpha Natural Resources  (NASDAQOTH: ANRZQ  ) plunged 10% today after Goldman Sachs downgraded the coal producer from neutral to sell.

So what: Along with the downgrade, analyst Neil Mehta lowered his price target to $4.00 (from $6.00), representing about 27% worth of downside to yesterday's close. So while contrarians might be attracted to the stock's weakness in recent months, Mehta's call suggests that the sentiment on Wall Street toward Alpha Natural isn't turning anytime soon.

Now what: According to Goldman, Alpha Natural's risk/reward trade-off remains particularly unattractive. "We are downgrading to Sell given: (1) a challenging met coal price outlook, driving our EBITDA estimates sharply below consensus; (2) valuations near historical peak levels on an EV/EBITDA basis; (3) competitively disadvantaged assets, including higher-cost met coal assets and lower-quality PRB mines; and (4) high leverage levels and incrementally negative FCF on our new forecasts," wrote Mehta. Of course, with the stock once again flirting with its 52-week lows and off about 40% over the past year, those worries might be providing resource-savvy Fools with a juicy long-term opportunity. 

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  • Report this Comment On March 07, 2014, at 9:38 PM, markstomarks wrote:

    The stock is down on panic selling of people who think a payout just happened or is some new news. In fact, payout was nearly done long ago and completed yesterday so was actually GREAT news not negative news.

    Those who have a 12 month target f $4 are idiots or just short imo since it is not logical or even possible imo. See book value, cash per share etc.$12 end of year yes but not $4 imo

    Good news for some of us is fact dumb weak hand shook out today and this could continue so will need to look at charts but for a company that will be $40 again in per share, these sure are great prices in my opinion.

    Good luck all and remember to know the real news so new subjective news or some new final news on old topic doesn't seem new or negative or positive in some cases.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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