The Whitehaven Coal Ltd (ASX: WHC) share price is bucking the downtrend in the sector as top brokers voiced their support for the embattled coal miner after it posted its quarterly production report.
The WHC share price jumped 1.5% to $4.05 in the last hour of trade even as the mining sector tumbled into the red with the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price coming in flat or dipping below breakeven.
In contrast, the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index gained 0.8% at the time of writing as the major banks supported the market with the Commonwealth Bank of Australia (ASX: CBA) share price leading the charge with a 1.9% gain to $71.56.
Down but not out
Coming back to Whitehaven, shareholders will be hoping that the stock has found a bottom after it collapsed by more than 30% since the start of this financial year.
At least a number of brokers seem to think it has despite the big drop in the thermal coal price and China's unofficial embargo of Australian coal imports. Credit Suisse is one that is reiterating its "outperform" recommendation on the stock with a $5.10 price target.
It noted that the miner's March quarter production report didn't produce any of the expected gremlins as unit cost guidance was kept and that Narrabri enjoyed a stronger quarter with no further change in to full year guidance.
"Headline downgrade at Maules no doubt disappointing but it is a short-term issue that will not extend beyond FY19," said Credit Suisse.
"Investment case still remains on track and WHC remains our top pick."
Other bullish calls
Morgan Stanley is another bull as the broker kept its "overweight" call on the stock with a target price of $5.50 a share.
"Although a weak production report driven by Maules, Narrabri has stabilized. We are already below low end of updated guidance and see value (implied thermal price of US$61/t vs. Spot: 86/t)," said the broker.
"Saleable coal production guidance has been lowered by 1Mt to 21.5-22.5Mt, which is a bit confusing, but could be driven by a flagged switch to more Met coal production at Maules."
Meanwhile, Morgans (not to be confused with Morgan Stanley) is also backing the stock with an "add" recommendation and $5.15 price target.
The broker noted that the thermal coal price has fallen below the cost of Chinese coal and that could spur demand for Whitehaven's product, assuming political ties between China and Australia normalises.
"The key question is when, which we can't answer with conviction, but we do note that coal markets have navigated several episodes of Chinese intervention via the use of unofficial and non-tariff trade barriers in the last 4-5 years," said Morgans.
"Meanwhile, positive supply/demand drivers for premium quality coals remain unchanged. We think that investors will readily return once China uncertainty abates."
