Maxim Group analyst keeps Buy rating on American Resources and sticks to 2021 revenue target

Maxim Group analysts remain bullish on American Resources Corporation (NASDAQ:AREC)’s long-term revenue growth forecasts and are keeping a Buy rating and a $1.50 price target on the coal producer after digesting its third-quarter results. 

“[G]uidance for coal production in 2020 continues to support our longer-term revenue growth forecasts, in our view,” wrote Tate Sullivan, in a recent note to investors in which he reaffirmed his 2021 revenue and EBITDA forecasts. 

Forecasts for revenue and EBITDA in 2021 maintained

Thanks to the opening of new mines and the re-opening mines as well as incremental production from American Resource’s most recent acquisition, “we still anticipate meaningful revenue growth in 2020, up 129%, and maintain our 2021 revenue and EBITDA forecasts,” Sullivan added.

Maxim’s 2021 revenue forecast for American Resources is $88.6 million while its EBITDA figure is expected to come in at $19.1 million.

Coal production in 2020 could hit 2.2 million tons

American Resource’s management now projects its 2020 coal production could hit 2 million to 2.2 million tons, which even at its low-end represents a “meaningful increase” from the 0.3 million tons of production notched in the first nine months of the year, according to Sullivan.

In the near term, due to the soft coal market, Sullivan is less optimistic about prospects for the company, which extracts coal from mines across Kentucky and West Virginia. “Based on potential delays expanding mines and increasing production from acquired mines, we reduce our 4Q19 and 2020 forecasts,” he noted.

Maxim’s fourth-quarter revenue forecast has been cut to $10.6 million from $16.6 million while its revenue forecast for next year has been pared to $66 million from $71.1 million to “account for a limited rebound in coal prices”.

CEO bullish on future outlook

When announcing earnings earlier this week, CEO Mark Jensen said that the company was “extremely excited” about the future of the metallurgical coal company as the demand for infrastructure increases around the world. 

“We are extremely excited about how our platform is set up to perform in 2020 and beyond,” Jensen told shareholders in a statement Monday. 

“Overall, the market for our products remains very promising as the world’s need for carbon, steel and infrastructure continues to be healthy, and our platform remains in a unique position of bringing a robust pipeline of growth to the market and to our investors.” 

The CEO’s statements came as the Indiana-based company released results that saw the company execute a new, strategically important acquisition of a fifth operating complex. Perry County Resources is a new carbon processing and logistics hub in the Central Appalachian basin that broadens American Resources’ footprint in the metallurgical carbon market.

READ: American Resources Corporation CEO “extremely excited” about the future of the metallurgical coal company as it posts third-quarter results

The company produced and sold 25,969 short tons of coal during the quarter.

Jensen acknowledged that the third quarter of 2019 proved to be a challenging quarter for the metallurgical coal industry, with a number of market participants liquidating assets through the bankruptcy process in the face of the seasonal steel slowdown.

That said, the company executed both organic opportunities as well as opportunities to further consolidate quality metallurgical carbon assets, according to Jensen.

Jensen said that the company was very active in the bankruptcy processes of assets within its operating region to acquire Perry. “The addition of Perry County to our portfolio of assets is already proving to be a valuable asset as we are executing on our restructuring plan while serving the existing customer base,” the CEO said in a statement.

3Q Results in Focus

American Resources posted revenue of $1.8 million and a loss of $7.1 million or $0.30 per share in the quarter.

The CEO said he expects markets to get stronger in 2020 on a tighter supply outlook.

 “We feel that we are in as good of a position as we have ever been to deliver attractive growth to our customers, employees and shareholders, and we maintain a sanguine outlook on carbon and steel markets given infrastructure development world-wide.”

Contact Ellen at [email protected]

Story by ProactiveInvestors