Improved Operations At Tunnel Ridge And Mettiki Will Increase Efficiency In 2025

Key Takeaways

• Infrastructure improvements and strategic investments are expected to enhance operational efficiency, profitability, and revenue growth by increasing coal sales volumes and capitalizing on demand.
  
• Record volume growth in oil, gas, and digital asset operations, especially Bitcoin, supports sustained or improved earnings and strategic market positioning.
  
• External pressures and reduced volumes in coal operations, along with pricing challenges, may strain Alliance Resource Partners' revenue, margins, and net income.

Catalysts

A diversified natural resource company, produces and markets coal primarily to utilities and industrial users in the United States.

• Alliance Resource Partners completed major infrastructure projects at several mines, which is expected to improve operational efficiency and reduce costs in 2025. This could lead to improved margins and profitability.
  
• Improved mining conditions and operational efficiencies, particularly at Tunnel Ridge and Mettiki, are anticipated to increase coal sales volumes in 2025. Higher volumes should contribute positively to revenue and earnings.
  
• The company plans to capitalize on reducing customer inventories and rising demand for domestic coal, positioning to flex additional tons to domestic or export markets. This increased demand could stabilize or enhance pricing, positively impacting revenue.
  
• Strategic capital investments in oil and gas mineral interests are expected to result in record volume growth in 2025, contributing to sustained or improved earnings from this segment.
  
• Alliance Resource is focusing on growing its digital asset (Bitcoin) operations, which positively impacted net income in 2024. The strategic investment in improving fleet efficiency could further enhance earnings in 2025.

Alliance Resource Partners Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alliance Resource Partners's revenue will decrease by 0.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.5% today to 18.3% in 3 years time.
• Analysts expect earnings to reach $448.8 million (and earnings per share of $3.42) by about April 2028, up from $354.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $501.7 million in earnings, and the most bearish expecting $395.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, up from 9.7x today. This future PE is lower than the current PE for the US Oil and Gas industry at 11.4x.
• Analysts expect the number of shares outstanding to grow by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.73%, as per the Simply Wall St company report.

Alliance Resource Partners Future Earnings Per Share Growth

Risks

• Challenges such as reduced volumes in the Appalachia region owing to difficult mining conditions, shipping delays, and unattractive export pricing could further impact coal sales volumes and revenue.
  
• Declines in realized coal and oil and gas prices have already adversely affected revenue, and continued price pressures could negatively impact net income and earnings.
  
• Increasing segment adjusted EBITDA expense per ton sold in coal operations due to lower volumes and adjustments related to previous acquisitions adds to the cost pressures, potentially squeezing margins.
  
• Market uncertainties leading to decisions to reduce production at some mines, like MC Mining, could result in further impairment charges impacting net income.
  
• The continuation of external pressures such as low natural gas prices, mild weather reducing coal demand, and potential export market disruptions could further hinder revenue and profit margins.

Valuation

• The analysts have a consensus price target of $30.5 for Alliance Resource Partners based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $448.8 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 6.7%.
• Given the current share price of $26.78, the analyst price target of $30.5 is 12.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.