Patriot Coal: Another day, another huge gain

If you think oil prices are spiraling out of control, take a peek at the stock chart for Patriot Coal Corp. After an 8-percent rally on Friday, Patriot shares surged another 12 percent Monday to close at $120 a share. Not bad considering the stock began trading at $32 a share in mid-October.

 The catalyst was a detailed report issued Monday by Friedman, Billings Ramsey & Co. analyst David Khani that sparked not only Patriot, but the rest of the coal sector as well. According to Khani, the recent run-up in coal stocks may not be close to finished.

The analyst raised his target price on Patriot to an eye-popping $250 a share. He raised his target for St. Louis-based Peabody Energy Corp. to $109 a share (from $73.92 on Friday) and Arch Coal Inc. to $101 (from $64.91 on Friday).

Khani’s thesis: Demand for coal for steelmaking and power generation is continuing to outstrip supply and that’s pushing prices higher. And higher prices mean bigger profits for coal miners. Overall, FBR raised its target prices for the coal sector by an average of 87 percent.

If FBR’s new target price for Patriot (the eastern coal producer spun off from Peabody last fall) seems a bit aggressive, consider that the firm’s April 30 recommendation turned out OK. At the time, Patriot shares had doubled to about $65 a share and Khani raised his target price to $95. It took a little more than two weeks to get there.

It is worth noting that Monday’s FBR report also discusses risks to the coal producers. Perhaps the biggest risk, Khani says, is ” a weakening global economy from rising inflation and increasing credit defaults and availability to fund growth.”