CNR Up as UBS Rates It a Buy
CNR shares picked up today and will rise more as post-merger costs fade and coal markets improve
Matt and I have been getting a number of questions about Core Natural Resources (CNR) recently, which has been hit by the decline in met and thermal coal prices over the last 6 months and is dealing with some inevitable post-merger stress and the Leer South outage. We’ve been saying that the stock is a good buy at current levels under $71/sh and I still believe that. We’ve also been saying that CNR shares will take a bit of time to rebound since we were in shoulder season for met and thermal coal, and CNR shares have been pretty rangebound since mid-April.
However, shares made a sizeable move higher today, likely driven by the initiation of coverage by UBS, which calls the stock a Buy with an $80/sh price target. We agree with UBS and have been saying that it’s a good idea to accumulate shares gradually as this is a play that might not have a ton of near-term catalysts, but one that should have legs over the medium and long-term. It’s slightly odd that the UBS note is moving shares when B. Riley and Benchmark have been rating shares a Buy for a while now with price targets above $100/sh. But I think what resonated with traders was UBS’s rationale that CNR is the only company buying back shares at the bottom of the cycle.
I’ve been working on updating our detailed CNR model, which we’ll get up to TCT.com shortly, once I get a few minutes to go over some of the met coal numbers with Matt. But with this article I want to put out some initial valuation thoughts based on rough numbers on where FCF will rebound once thermal and met coal prices rise back to more sustainable levels. While Q1 at CNR was pretty dismal with negative EBITDA and FCF, cash flow will rebound as met and thermal prices rise and Leer South starts up again. And management has a clear plan for share buybacks. Plus the company won’t have the nearly $50M in merger fees it paid in Q1, nor the $13M in executive compensation and an estimated $10M+ loss on Leer South.