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Some coal stocks won't be firing up hot gains as competition grows from cheap natural gas.

BMO Nesbitt Burns analyst Meredith Bandy downgraded two U.S. coal stocks and slashed their target prices on Monday because of a bleaker outlook for the sector after Appalachian coal producer Patriot Coal Corp. filed for bankruptcy protection last week.

The analyst lowered her ratings to "underperform" for Appalachian coal producers Alpha Natural Resources Inc. (formerly rated outperform) and Arch Coal Inc. (formerly rated market perform) because of balance sheet weakness and falling margins.

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Patriot Coal is the latest casualty of the gas glut stemming mainly from the "fracking" of shale deposits. The flood of cheap gas is not only crushing prices for that commodity but also reducing demand for coal.

Many U.S. coal companies entered 2012 with relatively high debt levels following a spate of mergers and acquisitions last year. "Arch and Alpha have the weakest balance sheet of the group," Ms. Bandy said in her report.

The Patriot bankruptcy is "likely to raise capital costs and sensitize investors to financial risks," but not all thermal coal basins are created equal, she noted.

Appalachian producers are among the highest-cost miners of metallurgical and thermal coal. "The Appalachian basin is an aging basin facing rising strip ratios, deeper and thinner seam mines and a rising cost structure," she said. "Appalachia needs above $4 (U.S.) per million British-thermal-unit (BTU) natural gas prices to compete."

On the other hand, the Powder River Basin in southeast Montana and northeast Wyoming has economies of scale to compete with natural gas below $3 per million BTU, she noted.

Cloud Peak Energy Inc. remains an "outperform" with a one-year target of $20 (U.S.) a share because it is the lowest-cost Powder River Basin producer that has good margins and a strong balance sheet, Ms. Bandy said.

Downside: She lowered her one-year target on Alpha Natural Resources to $5 a share from $18 and Arch Coal to $4 a share from $10.

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UEX Corp.
The junior uranium miner could be a potential takeover target now that Cameco Corp. -- which owns about 23 per cent of UEX -- advised terminating its "poison pill" recently, said Dundee Securities analyst David Talbot. "Cameco may be acting as a predator."

Upside: He rates UEX a "buy" with a one-year target of $1.85 (Canadian) a share.


Gluskin Sheff + Associates Inc.
Canaccord Genuity analyst Scott Chan cut his target on the wealth management firm because of expected declining assets in the second quarter, and lower performance fees of around $1-million versus an earlier estimate of $7-million.

Downside: He reduced his one-year target to $19.25 a share from $20, but maintained a "buy" rating.

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Bombardier Inc.
The firm's C Series aircraft grew its market share lead for new orders versus rivals during the Farnborough International Airshow by logging two new clients and 35 provisional orders and options worth more than $2-billion, said RBC Dominion Securities analyst Walter Spracklin.

Upside: He has an "outperform" rating with a one-year target of $5 a share.


Platinum Group Metals Ltd.
Raymond James analyst Alex Terentiew cut his target on the platinum-focused junior, but suggests there is still potential upside from catalysts like its South African Waterberg project and potentially rising commodity prices this year.

Downside: He maintains an "outperform" rating, but cut his one-year target to $1.50 a share from $1.80 to reflect his view of the risks to the miner.

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