One of the cheapest stocks in our all All Investable – Stock Screener is Alliance Resource Partners, L.P. (NASDAQ:ARLP).
ARLP is a diversified producer and marketer of coal to major United States utilities and industrial users. The company is the nation’s first publicly traded master limited partnership involved in the production and marketing of coal. It’s currently the second largest coal producer in the eastern United States with mining operations in the Illinois Basin and Appalachian coal producing regions. ARLP currently operates eight mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia, and operates a coal loading terminal on the Ohio River at Mount Vernon, Indiana.
Due to lower gas prices and ongoing emission control legislation, 2016 wasn’t a great year for coal producing companies. However, despite all of the talk about renewables and natural gas replacing coal in terms of electricity generation, the latest Annual Energy Outlook 2017 Report, released by theU.S. Energy Information Administration (EIA) shows that coal will continue to outpace natural gas as a selected fuel through 2020 as natural gas prices rebound from their 20-year lows which occurred in 2016. The same report also shows that while coal production in general is set to drop in a number of regions, the one location set to rise is the Interior Region which includes ARLP’s sites in Illinois, Indiana, and Western Kentucky.
ARLP is a terrific company that has excelled thanks to the strategic location of its mine sites being in close proximity to its customers and the fact that it produces thermal coal. The company is extremely well run with a strong balance sheet and the ability to generate loads of free cash flow. Ongoing improvements in operating efficiency mean ARLP has continued to improve both its operating and bottom line margins while remaining prudent with regards to its capital allocation.
In terms of its valuation, ARLP generated $364 million in free cash flow after dividends for the full year 2016 and remains squarely in undervalued territory with a FCF/Price Yield of 20% (ttm), a P/E of 6.98, and an Acquirer’s Multiple of 6.52, or 6.52 times operating earnings. The company also provides a nice shareholder yield of 14% (ttm) thanks to its outstanding track record of providing shareholders with dividends.
You can get our full stock analysis on Alliance Resource Partners at ValueWalk here.
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