Amid the escalating global emphasis on environmental concerns and the transition to cleaner energy sources, several nations find themselves struggling to diminish their dependence on coal.
In such a scenario, it could be an opportune time to scoop up shares of four fundamentally sound coal companies China Shenhua Energy Company Limited (CSUAY), CONSOL Energy Inc. (CEIX), SunCoke Energy, Inc. (SXC), and Hallador Energy Company (HNRG).
The global coal market saw a modest increase from $614.96 billion in 2022 to $621.89 billion in 2023 at a CAGR of 1.1% and is further expected to reach $658.68 billion in 2027 at a CAGR of 1.4%.
Despite significant strides toward boosting renewable energy sources, many countries have existing energy infrastructures that heavily depend on coal for electricity generation and industrial processes. Thus, curtailing the demand for coal in these regions can be challenging due to the need for alternative energy sources and the time required to build new infrastructure.
For instance, consider China's power sector, which alone constitutes one-third of the world's total coal consumption. India, on the other hand, exhibits an annual growth rate of 6% and is poised to spearhead the surge in coal consumption in the forthcoming years.
Moreover, according to the International Energy Agency (IEA), investments in global coal production and supply are projected to escalate by approximately 10% in 2023. Notably, almost 90% of this projected investment is anticipated to be concentrated in the Asia Pacific region, particularly in China and India, as both these nations have been actively seeking to amplify production and establish new coal mines.
Additionally, after experiencing considerable price fluctuations and high rates last year, coal prices have lowered in the first half of 2023, aligning with levels seen during the summer of 2021. The drop in coal prices has made imports more enticing for price-sensitive buyers, notably evidenced by Chinese imports nearly doubling in the first half of this year.
Forecasts indicate that global coal trade in 2023 will expand by over 7%, near the peak levels observed in 2019. Furthermore, it's anticipated that seaborne coal trade in 2023 might exceed the previous record of 1.30 billion tonnes established in 2019.
Given the solid demand from emerging economies, the coal industry will most likely remain in a sweet spot. To that end, let us delve deeper into the fundamentals of the featured coal stocks.
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 ($12.08 billion). The company’s attributable profit for the period rose marginally from the year-ago value to RMB23.59 billion ($3.27 billion), while its EPS 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 ($32.31 billion), increasing 10.3% compared to RMB211.05 billion ($29.29 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 $11.73 billion. It is expected to be $48.06 billion and $48.71 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. Likewise, its net income and levered FCF have improved at CAGRs of 23.9% and 9.8% over the same period, respectively.
The stock has gained marginally over the past month to close the last trading session at $10.99.
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 11-stock B-rated Coal industry, it is ranked first. 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 1.02%, while its annual dividend translates to a 5.24% yield on prevailing prices.
CEIX’s total revenue and other income increased 22.7% year-over-year to $660.96 million for the second quarter (ended June 30, 2023). The company’s net income and adjusted EBITDA amounted to $167.72 million and $275.94 million, up 32.8% and 27.6% from the year-ago values, respectively. Also, its free cash flow improved 13.1% from the prior-year quarter to $180.76 million.
The consensus revenue estimate of $587.25 million for the third quarter (ending September 30, 2023) represents a 4.6% increase year-over-year. The consensus EPS estimate of $4.80 for the same quarter indicates a 12.5% 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 32.7% and 77.4% over the past three years, respectively. Likewise, its net income and EPS have improved at CAGRs of 552.9% and 491.8% over the same period, respectively.
Over the past six months, the stock has gained 55.9% to close the last trading session at $84.05.
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. In the same B-rated industry, it is ranked #5. To see additional POWR Ratings of CEIX for Growth, Value, 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 August 1, SXC declared a quarterly dividend of 0.10 per share, payable to its shareholders on September 1, 2023. This marks a substantial 25% increase from the standard quarterly dividend of $0.08 per share.
The company’s annual dividend of $0.40 translates to a 4.36% yield on the prevailing prices, while its four-year average dividend yield is 3.55%. Its dividend payouts have grown at a 12.3% 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.
In the fiscal second quarter that ended June 30, 2023, SXC’s revenues increased 6.5% year-over-year to $534.40 million, while its operating income rose 8.6% from the year-ago value to $37.50 million.
The company’s attributable net income and EPS came in at $20.40 million and $0.24, up 13.3% and 14.3% from the prior-year quarter, respectively. In addition, its adjusted EBITDA grew 3% from the year-ago value to $71.40 million.
Street expects SXC’s revenue and EPS for the third quarter (ending September 30, 2023) to be $382.70 million and $0.19, respectively. Further, its EPS is expected to improve by 8% per annum over the next five years. Moreover, the company topped the revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Over the past three years, its revenue and EBIT have grown at CAGRs of 10.5% and 11.5%, respectively. Likewise, its levered FCF has improved at a 23.7% CAGR over the same period.
SXC’s shares have gained 26.1% over the past year to close the last trading session at $9.04.
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 a B grade for Value and Quality. Within the same industry, it is ranked #2. Click here to see the other ratings of SXC for Growth, Momentum, Stability, and Sentiment.
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.
On August 2, HNRG entered into a new credit agreement valued at $140 million with PNC Bank as the administrative agent, which will remain in effect until 2026. This move has notably bolstered the company's liquidity, raising it to a substantial $56.90 million.
HNRG’s total revenue for the second quarter (ended June 30, 2023) increased 144.5% year-over-year to $161.19 million, while its income from operations came in at $22.24 million. The company’s net income amounted to $16.92 million and $0.47 per share compared to a net loss of $3.39 million and $0.11 per share, respectively, in the same period last year.
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 surpassed the revenue and EPS estimates in three of the trailing four quarters, which is promising.
In addition, HNRG’s revenue and EBITDA have grown at CAGRs of 28.9% and 49.4% over the past three years, respectively. While its total assets and levered FCF have improved at CAGRs of 13.4% and 116.8% over the same period, respectively.
The stock has gained 48.3% over the past year to close the last trading session at $10.99.
It’s no surprise that HNRG has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth and a B for Value and Sentiment. Out of 11 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 Momentum, Stability, and Quality. Get all HNRG ratings here.
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CSUAY shares were trading at $11.11 per share on Tuesday morning, up $0.12 (+1.09%). Year-to-date, CSUAY has gained 7.21%, versus a 16.01% 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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