Natural Gas Brings Growth for CONSOL Energy Inc

Strong expected natural gas production growth could drive CONSOL Energy's shares higher.

Apr 30, 2014 at 2:43PM

CONSOL Energy's (NYSE:CNX) decision to sell half of its coal assets at the end of 2013 continues to pay off. The company recently smashed first-quarter earnings expectations thanks to good performance from its natural gas assets. Will CONSOL Energy's focus on natural gas production bring more upside to its shares this year?

Natural gas remains the growth driver
CONSOL Energy's first-quarter performance was very solid. The company got $336 million of operational cash flow, up from $268 million in the first quarter of 2013. Importantly, the increase in cash flow came despite the sale of half of the coal business. However, one can't count on such performance in the coming quarter.

The harsh winter caused a big spike in natural gas prices. Importantly, CONSOL Energy was exceptional in timing its sales. This led to an average natural gas sales price of as much as $5.52. It is highly unlikely that such pricing could be obtained in the second quarter of this year.

Meanwhile, CONSOL Energy reiterates its 30% annual production growth target, with all that growth coming from its Marcellus and Utica assets. This is an impressive number. In comparison, Chesapeake Energy (NYSE:CHK) targets 2%-4% production growth this year, while Range Resources (NYSE:RRC) expects a 20%-25% production growth.

No growth expected from the coal segment unless pricing improves
Despite the coal asset sale, CONSOL Energy remains significantly exposed to coal markets. The company produces both thermal and met coal, with thermal coal accounting for 82% of forecasted tons sold in 2014. Currently, domestic markets are in better shape than seaborne markets for coal. On the thermal coal side, CONSOL Energy expects to deliver 94% of its thermal coal production domestically. The demand for thermal coal was strong during the winter, and this seems likely to continue.

On the met coal side, things are not looking as good. CONSOL Energy expects to ship 81% of its met coal production overseas, meaning the company is exposed to the softest pricing. In order to prevent burning cash, the company is cutting its met coal production this year. Going forward, coal assets are unlikely to provide growth unless there's a serious change in coal pricing. As a result, CONSOL Energy is reluctant to spend more than necessary on its coal segment and is cutting capital spending from $459 million in 2013 to $390 million in 2014.

Bottom line
CONSOL Energy's results and growth prospects look solid. After rising 16% year to date, CONSOL Energy trades at more than 26 times its future earnings. Still, the company is valued cheaper by forward P/E than Range Resources, which trades at 36 times future earnings while expecting less production growth.

That said, it looks like CONSOL Energy might have more room to grow should it deliver expected results. The company's balance sheet remains in good shape, and CONSOL Energy expects to retain current debt levels. What's more, the company expects to make several non-core asset sales, which will further strengthen its cash position.

All in all, CONSOL Energy's business continues to grow. While the company's shares may look pricey for some investors, there might be more upside left.

3 stock picks to ride America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

 

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool recommends Range Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers