On March 16, Barclays raised its price target on three coal companies: ACI - $40 to $42; ANR - $54 to $62; PCX - $19 to $23.
On March 25, Deutsche Bank initiated ANR with a buy rating and $65 price target
On April 12, Citigroup raised price targets on four coal companies: ACI - $22 to $30; PCX - $13 to $22; ANR - $58 to $64; BTU $53 to $58.
On April 13, UBS raised price targets on seven coal companies: ANR - $58 to $61; ACI - $30 to $34; CNX - $67 to $68; MEE - $64 to $68; PCX - $21.50 to $27; WLT - $90 to $112; ICO - $6.50 to $7.50.
On April 19, Credit Suisse raised EPS estimates on five coal companies:
- ANR - 2010 EPS estimate from $3.15 to $3.58, 2011 from $3.34 to $4.85 and 2012 from $4.45 to $4.88;
- ACI - 2010 EPS estimate from $0.87 to $0.94, 2011 from $2.31 to $2.47, and 2012 from $3.30 to $3.54;
- CNX - 2010 EPS estimate of $2.58 to $2.66, our 2011 estimate from $3.78 to $4.46, and 2012 from $5.10 to $5.58;
- MEE - 2010 EPS estimate from $2.56 to $2.77, 2011 from $3.72 to $4.84, and 2012 from $4.79 to $5.21;
- BTU - 2010 EPS estimate from $3.13 to $3.64, 2011 from $4.50 to $5.29, and 2012 from $4.68 to $5.26.
"Summary of Price Revisions: We are raising our global metallurgical coal (HCC) price forecasts for the remainder of 2010 from $190 to $235, 2011 from $175 to $230, and 2012 from $165 to $200.
market to be in a modest (theoretical) deficit with market tightness to persist through 2011.
Demand – back at peak levels: w
ith China steel production back near record levels China imports of coking coal have
continued (imports totalling 7.5mt in the Jan-Feb) albeit at a less frenetic pace than
2H2009. This has coincided with a period of strong recovery in world ex China steel
production."
Technically, the stock is retrieving back closer to $45 support line which I expect to hold (see chart on the right). Given bullish analysts' commentary, bullish option activity and technical setups, I like the following calendar spread going into earnings:- Buy to open June $50 calls
- Sell to open May $50 calls
The spread is marked $1.00 and I don't want to pay anymore than $1.20. Many times readers ask me why I use calendar spreads so much. One, to turn Theta decay in my favor. Second, to take advantage of IV skew which in this case is 62 in May vs. 55 in June. Third, this is the best way to make a directional bet at sharply reduced cost. For instance, buying straight June $50 calls cost $2.60. I can get that same contract for only $1.00 or at 61% discount. This is a great relief because if I am wrong and ANR goes down, I have some buffer on the downside that I won't have with straight calls. Fourth, I am long options further out in time, that gives me more time to have the trade play out. Fifth, May Delta is 0.37 vs. June is 0.42. Meaning, I am long more "shares" than I am short. As time passes by, the difference in Deltas get bigger. In contrast to if I was long straight calls, without upside movement in underlying the Delta will get smaller as time goes by. And lastly, with long June options I have flexibility to convert the trade to bull/bear call spread depending on the price movement in underlying.
Control your risk, profits will come in automatically in time.
Good luck!
