The European energy crisis caused by the Russia-Ukraine conflict has increased global reliance on coal. Coal’s use for power generation is expected to increase in 2022, as high gas prices have led to the replacement of gas with coal in markets with spare coal plant capacity.
In the United States, coal production has risen considerably. The Energy Information Administration stated that production is up 6% from the first quarter of 2021. Global use of coal has been on the rise due to the energy crisis in Europe, and China has ramped up production and consumption of coal.
According to a Technavio report, the global coal mining market is expected to grow by $64.68 billion at a 2.2% CAGR until 2025, driven by better energy generation technology.
Given this backdrop, fundamentally strong coal stocks SunCoke Energy, Inc. (SXC), Warrior Met Coal, Inc. (HCC), and Arch Resources, Inc. (ARCH) might be ideal investments now.
SunCoke Energy, Inc. (SXC)
SXC is an independent producer of coke that offers metallurgical and thermal coal. The company operates through three broad segments Domestic Coke; Brazil Coke; and Logistics. It also provides handling and mixing services to its customers.
On June 28, SXC announced it had entered into a non-binding letter of intent with United States Steel Corporation (X) to process iron ore for manufacturing granulated pig iron on a ten-year initial term. This is expected to enhance SXC’s footprint.
SXC’s sales and other operating revenue increased 22.2% year-over-year to $439.80 million in the first quarter that ended March 31. Its operating income grew 27.2% from the year-ago value to $48.60 million, while net income attributable to SXC improved 78.8% year-over-year to $29.50 million. Earnings attributable to SXC per common share increased 75% from its year-ago value to $0.35.
The consensus EPS estimate of $0.94 for the fiscal year ending December 2022 indicates an 80.8% improvement year-over-year. The consensus revenue estimate of $1.77 billion for the same fiscal year reflects a 21.5% increase from the same period last year.
The stock has gained 6.4% year-to-date and 1.5% over the past five days to close its last trading session at $7.01.
SXC’s POWR Ratings reflect this promising outlook. The stock's overall A rating translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SXC is rated an A in Sentiment and a B in Value, Momentum, and Quality. Within the A-rated Coal industry, it is ranked #2 out of 11 stocks. Click here to see additional POWR Ratings for Growth and Stability for SXC.
Warrior Met Coal, Inc. (HCC)
HCC produces and exports non-thermal metallurgical coal for the steel industry. The company markets its metallurgical coal to a customer base of blast furnace steel producers. It also sells natural gas extracted as a byproduct from coal production.
In May, HCC announced the relaunch of its Blue Creek reserves into a new longwall mine located in Alabama near its existing mines. This growth investment is expected to bolster the company’s position as a pure-play producer of premium metallurgical coal products.
HCC’s total revenues came in at $378.65 million for the first quarter that ended March 31, representing a 77.1% year-over-year growth. Its adjusted EBITDA grew 417.3% from the prior-year quarter to $243.82 million.
Its adjusted net income rose 3,844.4% from the same period last year to $153.60 million. The adjusted net income per share increased 3,612.5% from the prior-year period to $2.97.
Analysts expect HCC’s revenue for the second quarter (ended June 2022) to be $574.69 million, indicating a 152.7% year-over-year growth. The company’s EPS for the same quarter is expected to increase 1,997% from the prior-year quarter to $5.24.
HCC has gained 69.8% over the past year and 15.8% over the last six months to close its last trading session at $29.94.
It is no surprise that HCC has an overall B rating, which translates to Buy in our POWR Rating system. The stock has an A grade for Quality and a B for Growth, Value, and Momentum. It is ranked #4 in the Coal industry.
Beyond what we’ve stated above, we have also given HCC grades for Stability and Sentiment. Get all the HCC ratings here.
Arch Resources, Inc. (ARCH)
ARCH produces and sells thermal and metallurgical coal from surface and underground mines. The company offers its products to utility, industrial, and steel producers in several countries.
On May 25, ARCH announced the closing of its privately negotiated exchanges of $125.20 million principal amount of its 5.25% Senior Convertible Notes due 2025 for an aggregate consideration of $130.10 million in cash and approximately 2.60 million shares of its common stock.
"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.
For the first quarter that ended March 31, ARCH’s revenues increased 142.8% year-over-year to $867.94 million. Its income from operations grew significantly from its negative year-ago value to $284.34 million, while its net income rose 4,599.7% from the prior-year quarter to $271.87 million. EPS came in at $12.89, up 3,322.5% from the prior-year period.
Street EPS estimate for the fiscal second quarter (ended June 2022) of $21.79 reflects a rise of 1,187.2% year-over-year. Likewise, Street revenue estimate for the same quarter of $1.01 billion indicates an improvement of 125% from the prior-year period. Additionally, ARCH has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
ARCH’s stock has gained 136.4% over the past year and 52.8% year-to-date to close its last trading session at $139.56.
This promising prospect is reflected in ARCH’s POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
ARCH has a B grade for Growth, Value, Momentum, and Quality. It is ranked #7 in the same industry. Click here to see the additional POWR Ratings for ARCH (Stability and Sentiment).
SXC shares were trading at $7.05 per share on Friday morning, up $0.04 (+0.57%). Year-to-date, SXC has gained 8.66%, versus a -15.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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