By Sam Boughedda
A B. Riley Securities analyst upgraded shares of Warrior Met Coal (NYSE:HCC) to Buy from Neutral, raising the price target to $50 from $48 in a note on Friday.
The upgrade is based on the company's "attractive valuation" after underperforming its "peer group by a whopping 71%," said the analyst.
"We believe the underperformance stems primarily from four factors. We do not anticipate a near-term resolution to all four, but there is a pathway for increased capital returns while the build-out of the company's flagship growth project continues. In our opinion, increased capital returns would be the most impactful near-term catalyst for the stock," the analyst added.
B Riley estimates that Warrior will end 2022 with $940 million in cash and net cash of $600 million, versus its $655 million in remaining growth capital commitments and 2023 FCFE of $298 million (excluding growth capex). "In short, by year end, Warrior's treasury should be sufficient to almost cover all of Warrior's debt and its multi-year growth project, making incremental cash available for shareholder returns," wrote the analyst.
"Warrior has been our only Neutral-rated coal stock for much of this year. Our upgrade here underscores our conviction in robust prices on the eve of a difficult heating season, as well as our improved views on Warrior as the benefits of higher for longer pricing accrues to all participants in the industry," he concluded.