UPDATE: Citigroup Downgrades CONSOL Energy on Lower Estimates on Thermal Coal Sale and Weaker Met

In a report published Monday, Citigroup analyst Brian Yu downgraded the rating on CONSOL Energy (NYSE: CNX) from Buy to Neutral, and lowered the price target from $43.00 to $39.00.

In the report, Citigroup noted, “We are adjusting our model for the recently announced thermal coal divestiture and lowering our 2014 EBITDA estimate to $992 mln from $1,358 mln. Our 2014 EPS estimate drops to $0.79 from $1.25 due to the dilutive impact of the asset sale as well as the impact of weaker met coal pricing. As we had previously laid out (CONSOL Energy (CNX) - Applaud Move to Monetize Assets but Flashlight Aimed at Well-Understood Piece), CNX's decision to divest its low-cost Northern Appalachia thermal coal assets would be dilutive to earnings and the company's valuation, since we did not capitalize the company's pension/OPEB liabilities in our EV/EBITDA calculations. In addition, the divestiture of lower-risk thermal coal assets increases (on a percentage basis) the company's exposure to met coal prices and natural gas. We expect natural gas prices to average $3.75/mmBtu in 2014. Following our estimate revisions, we do not see sufficient upside despite applying an above average EV/EBITDA multiple of 12x.”

CONSOL Energy closed on Friday at $35.98.