Identifying the key drivers
In this final part, we will study CONSOL Energy’s (CNX) stock price movement with respect to energy prices, the dollar index, and the broader market.
As seen in the above chart, CNX’s stock price was in an uptrend from June 2012 to June 2014 when NYMEX natural gas prices were also in an uptrend. NYMEX natural gas started its decline in February 2014, and then CNX stock also rose in June 2014. Since then, both NYMEX natural gas and CNX have been in a downtrend. CNX’s stock price also appears to be correlated with North Appalachian coal price movements. Both coal prices and CNX’s stock price have been in a decline since June 2014.
Clearly, natural gas and coal prices are key drivers behind movements in CNX’s stock price. CNX’s stock price has been underperforming natural gas and coal prices since the stock’s peak in June 2014. CNX stock price is down by ~83%, whereas natural gas is down by ~62% and coal is down by ~30% since their respective peaks in 2014.
Effect of stronger dollar
As seen in the above chart, there is an inverse relationship between CNX’s stock price and dollar index movements. A stronger dollar weakens energy prices, which affects CNX’s earnings.
Comparison to broader market
In 2015, CNX underperformed the S&P 500 ETF (SPY) with losses of ~77%, whereas the S&P 500 was almost flat during the same period.
CNX is changing its production base from coal to natural gas. CNX has good quality natural gas reserves and efficient and low-cost production capacity. CNX also has better hedges for 2016. However, CNX has a leveraged balance sheet. Also despite its strong hedges, CNX’s revenues are not immune to falling energy prices. Thus, the key factor for CNX’s outlook is how long it will take for natural gas and coal prices to exit this cyclical bear market.