Even as environmental concerns and the push for cleaner energy sources grow globally, numerous countries are struggling to reduce their reliance on coal. As a result, coal consumption is anticipated to rise in these regions.
Given the backdrop, it could be wise to load up the 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) that seem well-positioned to benefit from the industry tailwinds.
Despite the long-term goal being cleaner energy, many countries have existing energy infrastructure that heavily relies on coal for electricity generation and industrial processes. Transitioning away from coal overnight can be challenging due to the need for alternative energy sources and the time required to build new infrastructure.
For instance, China's power sector alone constitutes one-third of the world's total coal consumption. Additionally, India, with an annual growth rate of 6%, is poised to spearhead the surge in coal consumption in the forthcoming years. Moreover, the International Energy Agency (IEA) indicates that investments in global coal production and supply will escalate by approximately 10% in 2023.
Additionally, following a period of significant price fluctuations and high rates last year, coal prices have declined in the initial half of 2023, reaching levels comparable to those witnessed during the summer of 2021. This decrease can be attributed to ample supply and reduced costs of natural gas.
The decrease in coal prices has enhanced the appeal of imports for price-sensitive buyers. In particular, Chinese imports have nearly doubled in the first half of this year. Forecasts indicate that global coal trade in 2023 will expand by over 7% and 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. According to Research and Markets, the global coal market grew from $614.96 billion in 2022 to $621.89 billion in 2023 at a CAGR of 1.1% and is expected to grow to $658.68 billion in 2027 at a CAGR of 1.4%.
In light of such robust predictions, the coal industry will most likely stay in a favorable spot buoyed by the soaring demand in emerging economies. Thus, adding CUSAY, CEIX, SXC, and HNRG to your portfolio might be beneficial. That said, let us delve deeper into the fundamentals of these 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 stand at $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 4.5% over the past year to close the last trading session at $11.53.
CSUAY’s POWR Ratings reflect this robust outlook. The stock has an overall A rating, translating to a Strong 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 nine-stock A-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 5.51% yield on the 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 78% over the past three years, respectively. Likewise, its net income and EPS have improved at CAGRs of 552.9% and 490.5% over the same period, respectively.
Over the past six months, the stock has gained 50.7% to close the last trading session at $83.54.
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 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 4.30% yield on the prevailing prices, while its four-year average dividend yield is 3.52%. 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.
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 34.7% over the past year to close the last trading session at $9.23.
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. Within the same industry, it is ranked #3. Click here to see the other ratings of SXC for Growth, Momentum, Stability, Sentiment, 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.
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 49.9% 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 58.9% over the past year to close the last trading session at $10.28.
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. Out of nine 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, Sentiment, and Quality. Get all HNRG ratings here.
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CSUAY shares were trading at $11.60 per share on Thursday afternoon, up $0.07 (+0.61%). Year-to-date, CSUAY has gained 11.94%, versus a 17.23% 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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