The high demand for coal power generation in late 2021 was driven largely by the rebound in economic activity after the COVID-19-pandemic-induced slump and surging natural gas prices. Global consumption of coal recovered in 2021 and exceeded 2019 levels. And this year, Western economic sanctions imposed on Russia, the world’s third-largest coal exporter, in response to its invasion of Ukraine, have caused coal prices to skyrocket. Newcastle coal futures, the benchmark for coal in Asia, crossed the $400-per-tonne mark and are just $20 away from hitting their record high.
The upward trend in coal prices is expected to continue in the coming months due to a continuing demand-supply imbalance. “There is simply an almost complete absence of surplus thermal coal available globally. Prices have shot past $400 and the $500 per tonne mark seems to be in play,” said Steve Hulton, VP of Coal at Rystad Energy. According to the EIA estimates, U.S. coal exports will be 486.90 million short tons in 2022 and 466.70 million short tons in 2023. The rise in coal exports amid strong coal demand globally and a high pricing environment should boost the profitability of coal companies.
Therefore, we think it could be wise to bet on the stocks of coal producers SunCoke Energy, Inc. (SXC), Warrior Met Coal, Inc. (HCC), CONSOL Energy Inc. (CEIX), and Arch Resources, Inc. (ARCH), which are well-positioned to capitalize on the rising coal prices.
SunCoke Energy, Inc. (SXC)
SXC in Lisle, Ill., is an independent producer of coke that operates primarily in the Americas and Brazil. The company operates through three segments: Domestic Coke; Brazil Coke; and Logistics. It provides metallurgical and thermal coal. In addition, it offers handling and mixing services to steel, coal, electric utility, and other manufacturing-based customers. SXC owns and operates five coke making facilities in the U.S. and one coke making facility in Brazil.
SXC's sales and other operating revenue increased 22.2% year-over-year to $439.80 million in its fiscal 2022 first quarter, ended March 31, 2022. Its operating income rose 27.2% year-over-year to $48.60 million. Its adjusted EBITDA improved 18.7% year-over-year to $83.80 million. In addition, its net income attributable to SXC and earnings attributable to SXC per common share came in at $29.50 million and $0.35, respectively, registering an increase of 78.8% and 75% year-over-year.
Analysts expect SXC’s revenue for its fiscal year 2022, ending Dec.31, 2022, to be $1.77 billion, indicating a 21.5% increase year-over-year. Also, the $0.94 consensus EPS estimate for the current year represents an 80.8% rise from the previous year.
Shares of SXC have gained 22.3% in price year-to-date and 16.2% over the past year and closed yesterday’s trading session at $8.34.
SXC's POWR Ratings reflect this promising outlook. It has an overall A grade, which equates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
SXC has a grade of A for Sentiment and B for Value and Quality. Within the A-rated Coal industry, it is ranked #1 of 10 stocks. To see additional POWR Ratings (Growth, Stability, and Momentum) for SXC, click here.
Warrior Met Coal, Inc. (HCC)
HCC is the producer of non-thermal metallurgical coal for the steel industry. The Brookwood, Ala.-based company sells its metallurgical coal to blast furnace steel producers in Europe, South America, and Asia. In addition, it sells natural gas extracted as a byproduct of coal production. It owns and operates two underground mines located in Alabama.
This month, HCC’s board of directors declared a special cash dividend of $0.50 per share that was paid on May 20. The company also paid a regular quarterly cash dividend of $0.06 per share on May 13. HCC’s capital allocation strategy is designed to accelerate returns to shareholders through dividends. The recent shift to a higher price environment also allows the company to deploy its capital on special dividends.
On May 3, HCC relaunched the development of its Blue Creek hard coking coal project. “We are extremely excited about this organic growth project, which will transform Warrior and allow us to build upon our proven track record of creating value for stockholders. Blue Creek is truly a world-class asset and our commitment to this new initiative demonstrates our continued, highly focused business strategy as a premium pure play met coal producer,” stated Walt Scheller, CEO of HCC.
In its fiscal 2022 first quarter, ended March 31, 2022, HCC's total revenues grew 77.1% year-over-year to $378.65 million, and its operating income increased 1,586.5% year-over-year to $378.65 million. Its adjusted EBITDA improved by 417.3% from its year-ago value to $243.82 million. The company’s adjusted net income and adjusted net income per share amounted to $153.60 million and $2.97, respectively, registering a rise of 3,844.4% and 3,612.5% year-over-year.
The $504.51 million consensus revenue estimate for its fiscal 2022 second quarter, ending June 30, 2022, represents a 121.8% improvement from the same period in 2021. The company has topped the consensus revenue estimates in three of the trailing four quarters. Analysts expect HCC’s EPS for the current quarter to come in at $4.55, registering a 1,721.3% increase year-over-year.
The stock has increased 67.3% in price over the past six months and 103% over the past year and closed yesterday’s trading session at $35.09.
HCC's POWR Ratings reflect a promising outlook. The stock has an overall grade of B, which equates to Buy in our proprietary rating system.
HCC has a grade of A for Quality and a B for Value and Growth. Within the A-rated Coal industry, it is ranked #2 of 10 stocks. To see additional POWR Ratings (Momentum, Stability, and Sentiment) for HCC, click here.
CONSOL Energy Inc. (CEIX)
CEIX is the producer and exporter of bituminous coal in the United States. The Canonsburg, Pa., company operates through three segments: PAMC; CONSOL Marine Terminal; and Other. The company mines, prepares, and markets bituminous coal to industrial end-users, power generators, and metallurgical end-users. It owns and operates the Pennsylvania Mining Complex (PAMC) and CONSOL Marine Terminal. CEIX owns 612.1 million tons of proven and probable coal reserves at PAMC. In addition, it owns 1.4 billion tons of Greenfield reserves.
CEIX's total realized coal revenue increased 36.6% year-over-year to $390.12 million in its fiscal 2022 first quarter, ended March 31, 2022. The company’s adjusted EBITDA grew 58.6% year-over-year to $169.23 million. In addition, its net cash provided by operations came in at $148.21 million, registering a 90% increase from the prior-year period.
Analysts expect CEIX’s revenue for its fiscal 2022 second quarter, ending June 30, 2022, to come in at $436.15 million, indicating a 51.9% increase year-over-year. Also, the $2.35 consensus EPS estimate for the same quarter represents a 1,923.8% rise from the same period last year.
CEIX’s shares have gained 128.2% in price year-to-date and 290.1% over the past year and closed yesterday's trading session at $53.71.
CEIX’s POWR Ratings reflect a strong outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.
CEIX has a grade of B for Quality and Growth. It is ranked #6 of 10 stocks in the Coal industry. Click here to see CEIX’s ratings for Value, Stability, Sentiment, and Momentum.
Arch Resources, Inc. (ARCH)
ARCH in St. Louis, Mo., produces and sells thermal and metallurgical coal from surface and underground mines. The company sells its products to industrial, steel, and utility producers in the U.S., Europe, Asia, Central, and South America, and Africa. ARCH operates more than seven active mines. It owns 28,292 acres of coal land in Ohio, 10,095 acres in Virginia, 234,543 acres in Illinois, 33,047 acres of coal land in Kentucky, and 19,018 acres in Colorado.
On May 25, ARCH closed privately negotiated exchanges of $125.20 million of 5.25% convertible senior notes due 2025 for $130.10 million in cash and approximately 2.6 million shares of ARCH common stock. With the transactions, the company has reduced its overall indebtedness and eliminated future interest payments. “With these transactions, Arch has strengthened and simplified its capital structure in a way that should drive significant long-term value for our shareholders,” said Paul A. Lang, ARCH’s CEO and President.
ARCH's revenues increased 142.8% year-over-year to $867.94 million in its fiscal 2022 first quarter, ended March 31, 2022. Its income from operations amounted to $284.34 million for the period. In addition, its adjusted EBITDA rose 938.9% year-over-year to $320.98 million. ARCH’s net income and earnings per share came in at $271.87 million and $12.89, respectively, registering an increase of 4,599.7% and 3,322.5% from the prior-year period.
Analysts expect ARCH's revenue for its fiscal year 2022 second quarter, ending June 2022 to come in at $1.06 billion, representing a 136.4% rise year-over-year. The Street expects the company's EPS for the current quarter to come in at $23.54, representing a 1,290.2% increase year-over-year. Also, the company has an impressive revenue and earnings history; it has surpassed the consensus revenue estimates in each of the trailing four quarters, and the consensus EPS estimates in three of the trailing four quarters.
The stock has improved 95.8% in price year-to-date and 229.4% over the past year. It closed yesterday's trading session at $179.47.
ARCH’s POWR Ratings reflect a promising outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.
ARCH has a grade of A for Growth and B for Value and Quality. It is ranked #4 of 10 stocks in the Coal industry. Click here to see ARCH’s POWR Ratings for Momentum, Stability, and Sentiment.
SXC shares were trading at $8.35 per share on Friday morning, up $0.01 (+0.12%). Year-to-date, SXC has gained 28.70%, versus a -13.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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