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Will Alliance Resource (ARLP) Surprise in Q1 Earnings?

Alliance Resource Partners, L.P. ARLP will release first-quarter 2016 financial results before the market opens on Apr 26, 2016. In the prior quarter, this coal miner reported a negative surprise of 10.13%. Let’s see how things are shaping up at the partnership prior to this announcement.

Factors to Consider This Quarter

The coal industry continues to fight an uphill battle against stringent emission regulations and increasing uptake of clean burning natural gas. The declining demand for coal and a drop in selling prices are making it difficult for the coal players.

The demand for coal was further aggravated by a mild winter. The partnership is trying to cope with the difficult situation by shifting production to low cost regions. It is also idling mines, reducing unit shifts and production days to match output with demand.

Alliance Resource Partners expects 2016 coal demand for its Illinois Basin and northern Appalachia markets to be 6% to 7% below 2015, depending on the weather. So, the partnership is expected to operate below its installed capacity through 2016 in response to weak market conditions.

Surprise History

The above chart indicates that Alliance Resource Partners failed to generate positive earnings surprises in the last four quarters. The average negative surprise was 17.14%.

Earnings Whispers

Our proven model does not conclusively show that Alliance Resource Partners is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here.

Zacks ESP: This is because the Most Accurate estimate stands at  41 cents, on par with the Zacks Consensus Estimate, resulting in 0.00% ESP.

Zacks Rank: Though Alliance Resource’s Zacks Rank #3 increases the predictive power of the ESP, its 0.00% ESP makes a beat uncertain this quarter.

We caution against stocks with a Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

At present we have only one company related to the coal industry worth considering on the basis of our model, which shows that it has the right combination of elements to post an earnings beat this quarter.

SunCoke Energy Inc. SXC fits the bill with an earnings ESP of +150% and a Zacks Rank #1. It is slated to report earnings on Apr 27, 2016.

Here are a couple of operators in the oil & energy sector worth considering on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

Westar Energy WR has an earnings ESP of +10.64% and carries a Zacks Rank #3. It is expected to report earnings after the market closes on May 4, 2016.

Chesapeake Energy Corporation CHK has an Earnings ESP of +25.00% and a Zacks Rank #2 (Buy).  It is expected to report earnings on May 4, 2016.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
WESTAR ENERGY (WR): Free Stock Analysis Report
 
ALLIANCE RES (ARLP): Free Stock Analysis Report
 
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report
 
SUNCOKE ENERGY (SXC): Free Stock Analysis Report
 
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