Top broker tips double-digit returns for this stock even after the doubling in its share price

One of the best performing stocks on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) still has more left in the tank to run ahead in 2018 even though its share price has nearly doubled in the past six months, according to Credit Suisse.

The broker is referring to Whitehaven Coal Ltd (ASX: WHC), which has run up by more than 50% since July last year, which is nearly twice the gain made by sector leaders BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

Whitehaven suffered a pretty big sell-off last week after posting its December quarterly production report, although the stock has regained some ground today as it gained 1.4% to $4.39 in late afternoon trade.

Roof issues at its Narrabri mine that required extra reinforcements to be added has taken some of the wind out of its sails and given shareholders an excuse to take profit after its strong rally.

Investors were aware of the roof issue but didn’t think extra support was needed so soon. The reinforcements will add to cost pressures at the mine with ongoing cost increasing by $2 a tonne as management cut FY18 production forecast to 20.5 to 21 million tonnes.

Credit Suisse thinks investors were too focused on the negatives and may have overlooked some of the positives from the announcement.

Production guidance for Narrabri had actually been upgraded for FY19 and FY20, while production at its Maules mine was lifted for the current financial year. While the upgrade for Maules was modest, the broker thinks it’s a good basis for management to launch the next step-up of production at the mine.

But what is really making the broker excited is its upgrade in thermal coal pricing forecasts. Credit Suisse has lifted its pricing assumptions for the commodity by 17% in calendar 2018, 24% in 2019 and 18% the following year.

“Being as simplistic as possible, if we assume all ~17Mt sales are now done at a coal price US$12/t higher, this is >A$250 million in additional FCF [free cash flow] per year,” said the broker.

“Yes, Narrabri costs are up, sales of uncommitted met coal from Maules is challenging and yes 17Mtpa isn’t the exact number for every year we know, but the FCF generation leverage in this business is huge.”

This is why Credit Suisse has materially upped its share price target on Whitehaven to $4.60 from $3.40 a share and upgraded its recommendation on the stock to “outperform” from “neutral”.

The upside for the stock to the new price target may not sound like much, but the gain will be in addition to the 26.11 cents a share dividend that the miner is expected to pay in FY19. This puts the stock on a yield of nearly 6%.

Adding in the potential capital gain, the stock could deliver a 12% upside from its current share price.

If you are looking for a bigger bang for your investment dollar, click on the free link below to get your free report on one sector that the experts at the Motley Fool are particularly bullish on.

Bill Gates Says This Could Be Worth “10 Microsofts”

If You Missed Investing In Microsoft in 1996 – Read This

I can’t believe so many investors haven’t heard about something Microsoft founder Bill Gates told a group of college students in 2004.

This could be your chance to get in on the ground floor!

Click here to discover more!

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!