Market-Crushing Alliance Resource Partners Stock Hit Record High
June 21, 2024
Why ARLP Stock Is Worth Considering
Some green companies take pride in the fact that they provide renewable energy. Unfortunately, for some types of green energy, the intermittency of the resource can mean it doesn’t always function as planned.
Then there’s Alliance Resource Partners, L.P. (NASDAQ:ARLP). The company’s web site boasts that it provides “reliable energy for today and tomorrow.” It’s just not the kind of energy that makes renewable energy organizations happy.
Alliance Resource Partners is the largest coal producer in the eastern U.S. The Tulsa, Oklahoma-based partnership produces a diverse range of thermal coals with high heat content. It generates operating and royalty income from the production and marketing of coal to major domestic and international utilities and industrial users.
The demand for thermal coal, which is used for the production of electricity, is expected to grow in the U.S. at an unprecedented rate over the next 20+ years, fueled by the electric vehicle (EV), onshore manufacturing, data center, and artificial intelligence (AI) sectors. (Source: “Investor Presentation: May 2024,” Alliance Resource Partners, L.P., last accessed June 19, 2024.)
Alliance Resource Partners also generates royalty income from oil and gas mineral interests in strategic producing regions across the U.S.
Thanks to multiyear contracts, the company is able to generate predictable sales and cash flows. More than 90% of its 2024 sales-tonnage is contracted, and about 45% of its 2025 sales-tonnage is already contracted, too.
There’s more to Alliance Resource Partners than meets the eye. On its first-quarter earnings call, the partnership said it had mined 425 bitcoins (worth $30.0 million at the end of the first quarter) using the equipment and excess power at its facilities. (Source: “Alliance Resource Partners (ARLP) Q1 2024 Earnings Call,” The Motley Fool, April 29, 2024.)
On the earnings call, Cary Marshall, Alliance Resource Partners, L.P.’s chief financial officer, said, “In the second half of 2020, we started mining Bitcoin as a pilot project to monetize [already-paid-for] yet underutilized electricity load at our River View mine.” (Source: Ibid)
He later added, “We do have some extra capacity that we’re renting out to other bitcoin miners within the data center that we’ve effectively built for this bitcoin mining to take advantage of the low energy costs we have.”
Solid First-Quarter Results & Business Outlook
For the first quarter ended March 31, Alliance Resource announced that its revenues slipped slightly on an annual basis to $651.7 million. (Source: “Alliance Resource Partners, L.P. Reports Solid First Quarter Financial and Operating Results; Declares Quarterly Cash Distribution of $0.70 Per Unit and Reiterates 2024 Guidance,” Alliance Resource Partners, L.P., April 29, 2024.)
Its net income went down by 21% year-over-year to $158.1 million, or $1.21 per share, while its earnings before interest, taxes, depreciation, and amortization (EBITDA) fell by 13% year-over-year to $235.0 million.
On a sequential basis, the company’s revenues increased by 4.2%, its net income rallied by 37%, and its EBITDA advanced 29%.
Commenting on the first-quarter results, Alliance Resource Partners, L.P.’s CEO, Joseph W. Craft III, said, “We had a solid start to the year operationally, with all our mines running as expected and strong volumes coming from our Oil & Gas Royalties segment.” (Source: Ibid.)
Regarding the future, Craft said, “With our operations running as expected year-to-date and a well-contracted order book, we are reiterating our full-year guidance.”
He added, “We continue to maintain a small, uncontracted tonnage position that we can flex to either domestic or export markets as demand dictates, while our Oil & Gas Royalties business is off to a strong start that should set the tone for another robust year.”
For 2024, management expects that Alliance Resource Partners, L.P.’s coal sales will be similar to those of last year and that the company will generate another year of record-high revenues. The company also expects to complete major infrastructure projects in 2024.
Management Raised 1st-Quarter Distribution to $0.385 Per Share
Some investors may not like the idea of investing in coal, but they can’t sneeze at the money it generates. And that cash gets passed on to shareholders in the form of reliable dividends.
Since its inception in 1999, Alliance Resource Partners has paid cumulative cash distributions of about $4.0 billion. In May, Alliance Resource Partners stock paid a quarterly cash distribution of $0.70 per unit. (Source: Ibid.)
As of this writing, that works out to a yield of 11.7%.
ARLP stock’s payout is safe, too. The company’s payout ratio is just 61.2%, with a distribution coverage of 1.53x. Over the long run, management is targeting a distribution coverage ratio of 2.0x to 2.5x.
Alliance Resource Partners Stock Hit New Record High
Since bottoming during the 2020 COVID-19 crisis, ARLP stock has been on a tear, rising by 1,127% (adjusted for dividends). Had investors decided to not reinvest their dividends, the returns would have slid to 794%.
On June 3, Alliance Resource Partners stock hit a new record high of $25.53, and it continues to trade near that level. (Source: “Alliance Resource Partners, L.P. (ARLP),” StockCharts.com, last accessed June 19, 2024.)
As of this writing, ARLP stock is changing hands at $23.96, which puts it up by:
- 25% over the last three months
- 32% over the last six months
- 53% year-over-year
Chart courtesy of StockCharts.com
The Lowdown on Alliance Resource Partners, L.P.
There’s a lot to like about Alliance Resource Partners stock.
The company has consistently reported strong adjusted EBITDA margins due to well-covered, multiyear contract books. Moreover, the demand for thermal coal is high, thanks to significant growth in the demand in the U.S. for electricity to power EVs, manufacturing facilities, and data centers.
This helped Alliance Resource Partners, L.P. deliver record-high 2022 and 2023 results, with that momentum expected to continue in full-year 2024. High cash flow throughout commodity cycles helps the company provide investors with reliable dividends while ARLP stock trades at record-high levels.
