Foundation Coal (NYSE:FCL) may not be as big as Peabody (NYSE:BTU), Arch Coal (NYSE:ACI), or CONSOL Energy (NYSE:CNX), but that doesn't mean that its coal is any less valuable. As utilities continue to carry below-normal inventories, Foundation continues to get solid pricing for its coal.

Its third-quarter sales climbed 33% on the one-two punch of double-digit growth in shipments and double-digit growth in average price realizations. With more coal moving out the door (and at a better price), margins continue to improve, and the company more than doubled its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) and reversed a year-ago net loss.

Shipments rose 11% overall, with about half of the gain coming from increased shipments of coal from the Powder River Basin in Wyoming. Although there still are rail issues with Burlington Northern Santa Fe (NYSE:BNI) and Union Pacific (NYSE:UNP), there were considerable improvements from Foundation's perspective, and the company shipped 19% more than it did in the second quarter.

Pricing, too, is still strong, and Foundation's average realized price per ton increased by $3.10, or 19.9%. Although realized Powder River Basin prices actually declined a bit, realized prices for coal from Appalachia and the Illinois Basin all rose by more than 20% relative to last year. While coal prices continue to rise, the company is also keeping a good hand on expenses, with per-ton sales costs rising only 4% compared with last year's pro-forma quarter.

Looking out a few years, Foundation has a sizable chunk of its coal under contract. Almost all of next year's anticipated production is locked in, as well as three-quarters of 2007's production and about half of 2008's output. Although some of these contracts will have price-adjustment features in them, it's a trade-off between all but assuring very profitable future business and taking the risk of selling at spot prices.

Investors are certainly already on to the coal story, and the stocks have been generally strong across the board. There are plenty of ways to value coal stocks, but Foundation does seem a bit cheaper than the rest. While some discount may be in order because of the company's high debt and smaller size, investors still looking to get into the coal space might find these shares a better relative value.

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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).