Bear of the Day: Core Natural Resources (CNR)

Every now and then, a sector catches a tailwind so strong it lifts every name in the group, even the ones that don’t deserve it. That’s what’s been happening in natural resources this year. Oil and gas plays, miners, and energy infrastructure stocks have all enjoyed a run thanks to rising commodity prices and renewed investor appetite for “real assets.” But under the surface, not every name is pulling its weight.

Today’s Bear of the Day is Core Natural Resources (CNR), a stock that’s been lagging behind its peers despite the broader commodity rally. The company finds itself struggling with execution, inconsistent production volumes, and weakening profitability. That combination has analysts turning sour, and it’s showing up in the Zacks Rank. CNR currently carries a Zacks Rank #5 (Strong Sell).

The reason for the unfavorable Zacks Rank is the recent negative earnings revisions coming from analysts. Our current year Zacks Consensus Estimate has tumbled from $5.37 to a loss of $1.10. Looking at next year, earnings estimates are off from $12.24 to $10.39. Granted, that is a huge amount of earnings growth coming down the pike. However, that comes on revenue growth of just 6.3% next year. This is also a stock that has run up from under $70 to $97 in a little over a month.

Core Natural Resources’ biggest problem isn’t top-line growth, right now it’s profitability. The company has been facing higher input costs, operational inefficiencies, and tougher contract terms in several of its core basins. Add to that a debt load that’s creeping higher due to capital spending on new projects, and you get an ugly balance sheet picture. Debt-to-equity now sits at a multi-year high, pressuring cash flow and limiting flexibility.

Core Natural Resources, Inc. Price and Consensus

Core Natural Resources, Inc. price-consensus-chart | Core Natural Resources, Inc. Quote

When analysts are cutting estimates, margins are shrinking, and debt is climbing, that’s not a recipe for outperformance. Core Natural Resources finds itself on the wrong side of the commodity cycle at the worst possible time. Until the company can reverse the earnings revisions trend, investors may want to stay on the sidelines.

The Coal industry ranks in the Bottom 14% of our Zacks Industry Rank. There are no stocks within this industry that are in the good graces of our Zacks Rank. There are two Zacks Rank #3 (Hold) stocks. These include Alliance Resource Partners (ARLP) and SunCoke Energy (SXC).

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This article originally published on Zacks Investment Research (zacks.com).

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