James M. Rollyson Raymond James 800-248-8863
Alliance Resource Partners' (ARLP) earnings came in strong as the partnership continues to be the model of consistency in the coal universe. Combined with the company's defensive positioning within the volatile market (fully contracted for 2013), ARLP appears set to continue its operational efficiency into 2013. With a strong production growth trajectory supporting continued distribution growth, we reiterate our Strong Buy rating with an $84 price target.
Distribution growth trend continues: Despite the tumultuous market environment, Alliance continues its streak of solid distribution growth with 4Q12's distribution of $1.1075. This represents sequential growth of 2.1% and approximately 12% year over year.
The distribution equates to $4.43 annually or a yield of 6.9% as of Tuesday's close. ARLP has maintained its impressive distribution track record of double-digit annual growth, with 19 straight quarters of distribution growth. Furthermore the company's 4Q12 total unit coverage is a stout 1.6 times earnings. Going forward we are modeling distribution growth of 2% sequentially.
2013's guiding light: Alliance's 2013 guidance was a bit lighter than we had expected, and likely bakes in a decent amount of conservatism. Management expects 2013 production and sales volumes in the 38.1 million-39.1 million ton (MT) range, which is fully contracted at the midpoint. Additionally, the company's guidance does not include any metallurgical sales (which we had baked in), given the weak market. Overall we are expecting 2013 net income of $334 million, (near the middle of management's $300-350 million range) with 2013 EPU of $5.65.
Joel Havard J.J.B. Hilliard, W.L. Lyons, LLC 502-588-1833 [email protected]
