On Tuesday, Benchmark analyst raised the stock price target for Alliance Resource Partners (NASDAQ:ARLP) to $27 from $26, while maintaining a Buy rating on the stock. The adjustment comes in the wake of the company's third-quarter financial performance, which did not meet the analyst's expectations nor the market consensus.
Alliance Resource Partners reported an adjusted EBITDA of $170 million for the third quarter, which fell short of Benchmark's $198 million estimate and the $203 million market consensus. The company's results were adversely affected by a combination of factors, including shipment deferrals, a decrease in export sales, and challenging conditions at all three of its Appalachia mining operations.
For the fourth quarter, the company anticipates sales to exceed production as it plans to reduce its inventory levels by 1.0 million to 1.5 million tons quarter-over-quarter. However, due to the difficulties faced in the third quarter, full-year shipments for the Appalachia segment are expected to be below the previously issued guidance, and the segment's expense per ton is projected to exceed the target range.
Despite these challenges, Alliance Resource Partners' full-year sales and price per ton are forecasted to be at the lower end of the previously unchanged ranges, with expense per ton at the higher end of prior guidance.
Looking ahead, the company is in the process of finalizing additional contracts for approximately 21.7 million tons spanning from 2025 to 2030. These contracts are set to elevate its 2025 commitments to historical levels as the new year approaches.
While the pricing for 2025 is anticipated to decline, the completion of recent projects is expected to reduce costs, with the management aiming for flat year-over-year margins of 30%. With an expected increase in electricity demand and Alliance Resource Partners' ongoing efforts to diversify beyond coal, Benchmark reaffirmed its Buy rating and increased the price target to $27. The analyst's statement highlighted these strategic moves as a basis for the positive outlook and target adjustment.
In other recent news, Alliance Resource Partners reported a mixed bag of results for the third quarter. Despite an increase in coal sales shipments by 6.7% to 8.4 million tons, the company experienced a decrease in coal production by 7.2% to 7.8 million tons and a 2.1% drop in the average coal sales price per ton compared to the previous year. The company's net income for Q3 2024 was reported at $86.3 million, with consolidated revenue at $613.6 million.
Alliance Resource Partners also announced ongoing major capital projects, expected to complete in early 2025, which should lower operating costs and extend mine life. CEO Joe Craft expressed optimism about the rising demand for coal, especially from sectors like data centers and manufacturing. The company plans to reduce coal inventory to between 500,000 and 1 million tons by year-end.
However, the company also faced challenges such as low natural gas prices, difficult mining conditions, and a $2.3 million equity method investment loss due to adjustments in their EV charging investment.
Despite these setbacks, Alliance Resource Partners maintains its guidance for coal sales volumes and prices for 2024, with adjustments in production due to market conditions. These are among the recent developments for the company.
InvestingPro Insights
Despite the challenges highlighted in Alliance Resource Partners' recent quarterly performance, InvestingPro data reveals some compelling aspects of the company's financial position. ARLP's P/E ratio of 7.41 suggests that the stock may be undervalued relative to its earnings. This is further supported by the company's strong dividend yield of 10.98%, which aligns with an InvestingPro Tip indicating that ARLP "pays a significant dividend to shareholders."
The company's revenue for the last twelve months stands at $2.51 billion, with a gross profit margin of 36.11%. This robust margin, coupled with an operating income margin of 22.01%, demonstrates ARLP's ability to maintain profitability despite industry headwinds. An InvestingPro Tip also notes that the company has "maintained dividend payments for 26 consecutive years," which may provide some reassurance to investors concerned about the recent quarterly performance.
ARLP's stock performance has been notable, with a year-to-date total return of 32.26% and a one-year total return of 28.36%. These figures, along with the fact that the stock is trading at 97.29% of its 52-week high, support another InvestingPro Tip stating that ARLP is "trading near 52-week high."
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights, with 6 more tips available for ARLP on the platform.
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