With earnings season beginning tonight, Barclays Capital analyst David Gagliano revised first quarter estimates for a half dozen companies in his coverage universe, mostly to reflect commodities pricing.
In a note out today he wrote that while he remains Âconcerned about the long-term picture for U.S. thermal coal, he thinks that the stocks Âappear ripe for a near-term rebound during the first quarter reporting season.Â
He thinks stocks could move up given some early signs of stabilization in both met and thermal coal prices and that companies will likely highlight capacity cuts during their reports. ÂWhile it remains to be seen whether the announced cuts will be enough to re-balance the US coal market, in our view typically when there are large production cuts announced, the stocks react favorably. To be clear, we do not expect earnings ÂbeatsÂ. Instead, we believe additional downward estimate revisions are likely due to the production cuts that we believe are inevitable. However, in our view, the equities are more sensitive to directional shifts in underlying supply/demand drivers, rather than directional shifts in earnings expectations, at this stage in the investment cycle.Â
Gagliano has Overweight ratings on AK Steel Holdings (AKS), Alpha Natural Resources (ANR), Century Aluminum (CENX), Consol Energy (CNX), Freeport-McMoRan (FXC), Peabody Energy (BTU) and Stillwater Mining (SWC). He has an Underweight rating on Cloud Peak Energy (CLD).
