Please ensure Javascript is enabled for purposes of website accessibility

Why Alpha Natural Resources, Inc. Plunged

By Brian Pacampara – Mar 7, 2014 at 2:48PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is this meaningful or just another movement?

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 (NYSE: ANR) 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. 

Brian Pacampara has no position in any stocks mentioned, and neither does The Motley Fool. 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.