If you get yourself tangled up in simple GAAP accounting, you're going to miss the forest for the trees at Penn Virginia Resource Partners
For instance, net income was down 22% this quarter. So what? Net income, in this case at least, is an accounting result that includes non-cash expenses/losses relating to derivatives hedging. What actually matters -- the distributable cash flow that backs up the dividend payment -- rose 22%, and that's the number that I'd argue matters most.
It was once again a solid operating quarter for the two businesses. In the coal operations, operating income rose 18% on a similar rise in revenue. Production rose nearly 10%, and royalties per ton were up about 9%. The company also made an acquisition of about 69 million tons of Appalachian coal for $65 million -- an attractive price relative to current market valuations for publicly traded coal companies like Peabody
On the gas side, operating income more than doubled on an 11% increase in inlet volumes. Gross processing margins were exceptional this time around, helped by higher natural gas liquids prices coupled with lower natural gas prices. Here, too, the company made an acquisition, buying some pipeline assets that don't seem important in isolation but which will help one of the company's other assets run at full capacity (and capacity utilization is often the name of the game in that sort of business).
Penn Virginia is good, but it's not cheap after its recent rally. It does have above-average cash flow growth potential and good internal diversification, but that's already at least somewhat reflected in the stock price. It's a tempting stock as is, particularly given the fundamentals of the coal market, but I'm sorely tempted to hope for another bout of fear and consternation that would drive the shares a little lower.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).