Despite widespread environmental concerns and the drive toward cleaner energy sources, there are several countries worldwide that are struggling to break their dependence on coal. As a result, coal consumption is projected to increase.
Given such prospects, it could be wise to scoop up the shares of four fundamentally solid companies China Shenhua Energy Company Limited (CSUAY), CONSOL Energy Inc. (CEIX), SunCoke Energy, Inc. (SXC), and Hallador Energy Company (HNRG) that seem well-positioned to benefit from the industry tailwinds.
The global coal market expanded from $614.96 billion in 2022 to $621.89 billion in 2023, reflecting a 1.1% CAGR. Looking ahead, the coal market is projected to reach $658.68 billion by 2027, exhibiting a CAGR of 1.4%.
In light of the Russia-Ukraine war, several countries implemented sanctions on Russian energy exports, which led to a major disruption in oil and gas supplies. This sudden turn of events led to a shift in energy security concerns, forcing many European states that were aiming to transition away from fossil fuels to seek sources such as coal.
Additionally, the International Energy Agency (IEA) predicts that emerging and developing economies in Asia will raise their coal consumption to support economic growth, despite incorporating more renewable energy into their energy mix.
Coal remains one of the largest sources of electricity generation in emerging economies. China’s power sector accounts for one-third of global coal consumption. Moreover, with a growth rate of 6% annually, India is expected to lead the growth in coal consumption in the upcoming years. On top of it, according to the IEA, investment in global coal production and supply in 2023 is expected to rise by about 10%.
Considering the above statistics that highlight a strong demand for coal in emerging economies, the long-term outlook of this industry should remain positive. Thus, investing in CSUAY, CEIX, SXC, and HNRG could be beneficial. That being said, let us now delve deeper into the fundamentals of the featured stocks in detail to get a better perspective.
China Shenhua Energy Company Limited (CSUAY)
Based in Beijing, China, CSUAY produces and sells coal and power; railway, port, and shipping transportation; and coal-to-olefins businesses. The company is a subsidiary of China Energy Investment Corporation Limited and operates through six segments: Coal; Power Generation; Railway; Port; Shipping; and Coal Chemical.
On June 25, Xinshuo Railway launched China’s first Rail Transport and New Energy Integrated Power Supply project. This pioneering initiative aims to integrate new energy solutions with railway traction, serving as a demonstration project for integrated energy supply. Once completed, it is expected to substantially decrease the expenses associated with the railway traction power supply system.
In the same month, CSUAY was recognized as one of China’s Top 100 ESG Pioneer Listed Companies, ranking second in the mining industry. On top of it, it won seven WIND awards, including WIND HKEX ESG Best Practice Award 2022. Such recognition demonstrates the company’s progress in refining its ESG governance system, elevating the transparency of information disclosure, and bolstering its ESG governance capabilities.
For the fiscal first quarter that ended March 31, 2023, CSUAY’s revenue increased 3.7% year-over-year to RMB87.04 billion ($12.19 billion). The company’s attributable profit for the period rose marginally from the year-ago value to RMB23.59 billion ($3.30 billion), while its earnings per share stood at RMB1.04, up 4.3% from the prior-year quarter.
During the same period, its total current assets amounted to RMB232.77 billion ($32.59 billion), increasing 10.3% compared to RMB211.05 billion ($29.55 billion) as of December 31, 2022.
Analysts expect CSUAY’s revenue for the third quarter (ending September 30, 2023) to increase marginally year-over-year to $11.82 billion. It is expected to stand at $48.26 billion and $48.91 billion for the fiscal years 2023 and 2024, respectively.
Additionally, its revenue and EBIT have grown at CAGRs of 13.8% and 17.5% over the past three years, respectively. While its net income and Levered FCF increased at CAGRs of 23.9% and 9.8% over the same period, respectively.
The stock has gained 6.3% over the past year to close the last trading session at $12.
CSUAY’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability and Quality. In the 10-stock A-rated Coal industry, it is ranked #3. Click here to see CSUAY’s ratings for Growth, Value, Momentum, and Sentiment.
CONSOL Energy Inc. (CEIX)
CEIX is a producer and exporter of bituminous coal in the United States. It operates through two segments: The Pennsylvania Mining Complex (PAMC); and CONSOL Marine Terminal. In addition, the company develops and operates the Itmann Mine and the Greenfield reserves and resources.
On May 23, at the board of directors’ discretion, CEIX paid the previously announced dividend of $1.10 per share, representing approximately 17% of the free cash flow generated in the first quarter of 2023. The payment amounted to an aggregate of about $37.30 million.
CEIX’s four-year average yield is 0.92%, while its annual dividend translates to a 7.02% yield on the prevailing prices.
CEIX’s total revenue and other income increased 92.1% year-over-year to $688.61 million for the first quarter (ended March 31, 2023). The company’s net income and EPS amounted to $230.38 million and $6.55 compared to a net loss and loss per share of $4.45 million and $0.13, respectively, in the same period last year. Also, its adjusted EBITDA improved 104.6% from the prior-year quarter to $346.30 million.
The consensus revenue estimate of $588.30 million for the second quarter (ended June 30, 2023) represents an 8% increase year-over-year. The consensus EPS estimate of $4.66 for the same quarter indicates a 30.5% year-over-year growth. Additionally, the company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is excellent.
CEIX’s revenue and EBITDA have grown at CAGRs of 22.6% and 50.8% over the past three years, respectively. Likewise, its net income and EPS have improved at CAGRs of 122.2% and 101.4% over the same period, respectively.
Over the past year, the stock has gained 13.9% to close the last trading session at $62.72.
CEIX’s POWR Ratings reflect this solid outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. In the same A-rated industry, it is ranked #2. To see additional POWR Ratings of CEIX for Growth, Momentum, Stability, and Sentiment, click here.
SunCoke Energy, Inc. (SXC)
SXC operates as an independent producer of coke in the Americas and Brazil. The company operates through three segments: Domestic Coke; Brazil Coke; and Logistics. It offers metallurgical and thermal coal.
On June 1, SXC paid its shareholders a dividend of $0.08 per share. The company’s annual dividend of $0.32 translates to a 3.92% yield on the prevailing prices, while its four-year average dividend yield is 3.46%. Its dividend payouts have grown at a 21.1% CAGR over the past three years.
On April 24, SXC and Cleveland-Cliffs Inc. agreed to extend their current contract for an additional 12 years. According to the terms of the extension, SXC will continue to supply Cleveland-Cliffs with 1.22 million tons of metallurgical coke each year.
Mike Rippey, CEO of SXC, expressed his satisfaction with the contract renewal, stating that it reinforces the enduring partnership between SXC and Cleveland-Cliffs.
In the first quarter that ended March 31, 2023, SXC’s revenues increased 10.9% year-over-year to $487.80 million, while its operating income amounted to $31.70 million.
During the same period, the company’s attributable net income and EPS came in at $16.30 million and $0.19, respectively. In addition, its total current assets stood at $409.80 million, up 9.6% versus $374 million as of December 31, 2022.
Street expects SXC’s revenue and EPS for the second quarter (ended June 30, 2023) to be $422.65 million and $0.19, respectively. Further, its EPS is expected to improve by 8% per annum over the next five years. Moreover, the company surpassed the revenue estimates in each of the trailing four quarters and EPS estimates in three of the trailing four quarters, which is impressive.
Over the past three years, its revenue and EBIT have grown at CAGRs of 8.3% and 10.1%, respectively. Likewise, its levered FCF has improved at a 40.5% CAGR over the same period.
SXC’s shares have gained 29.7% over the past nine months and 19.8% over the past year to close the last trading session at $8.17.
SXC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Value. Within the same industry, it is ranked first. Click here to see the other ratings of SXC for Growth, Momentum, Stability, and Quality.
Hallador Energy Company (HNRG)
HNRG engages in the production of steam coal for the electric power generation industry. The company owns the Oaktown Mine 1 and Oaktown Mine 2 underground mines in Oaktown; Freelandville Center Pit surface mine in Freelandville; and Prosperity Surface mine in Petersburg, Indiana.
HNRG’s total revenue for the first quarter (ended March 31, 2023) increased 219.7% year-over-year to $188.33 million, while its income from operations came in at $29.23 million.
The company’s net income amounted to $22.05 million and $0.61 per share compared to a net loss of $10.13 million and $0.33 per share, respectively, in the same period last year. Also, its adjusted EBITDA improved significantly from the prior-year quarter to $34.02 million.
Analysts expect HNRG’s revenue and EPS for fiscal 2023 (ending December 31, 2023) to increase 74.8% and 140.4% year-over-year to $632.70 million and $1.37, respectively. Moreover, the company topped the revenue estimates in three of the trailing four quarters, which is promising.
In addition, HNRG’s revenue and EBITDA have grown at CAGRs of 18.6% and 36.9% over the past three years, respectively. While its total assets and levered FCF have improved at CAGRs of 14.1% and 76.1% over the same period, respectively.
The stock has gained 40% over the past year to close the last trading session at $8.71.
It’s no surprise that HNRG has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Growth. Out of 10 stocks in the same industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have HNRG’s ratings for Value, Momentum, Stability, Sentiment, and Quality. Get all HNRG ratings here.
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CSUAY shares were trading at $12.05 per share on Monday afternoon, up $0.05 (+0.42%). Year-to-date, CSUAY has gained 16.29%, versus a 18.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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