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4 Stocks to Watch as the Coal Industry Continues to Prosper

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The Zacks Coal industry stocks have staged a rebound courtesy of global demand after the pandemic-led lockdowns and surging natural gas prices. Improving coal prices and demand boosted the profit levels of coal operators in the last quarter. This trend might continue for the next few years. With increased vaccinations and global economic activity, electricity demand is rising, and utility operators are buying more coal to boost production.

As global steel production improves, coal stocks like Peabody Energy Corporation BTU, ARCH Resources Inc. ARCH, Warrior Met Coal Inc. HCC and CONSOL Energy Inc. CEIX are expected to gain.



About the Industry

The Zacks Coal industry comprises companies involved in the discovery and mining of coal. Coal is mined by either the opencast or the underground method. Coal is valued for its energy content and used worldwide to generate electricity as well as in steel and cement manufacturing. Per the U.S. Energy Information Administration (“EIA”) report, the current U.S. estimated recoverable coal reserves are about 252 billion short tons, of which about 58% is underground mineable coal. Given the current production rates, coal resources are likely to last many more years. Five states of the United States contribute nearly 70% of yearly production and 60% of coal production from surface mining. Per EIA, the coal industry may benefit from the rise in natural gas prices in the United States. This would result in additional demand for coal.

3 Trends Likely to Impact the Coal Industry

Coal Exports Likely to Rise Amid Higher Steel Production: Improving coal exports are boosting the prospect of the U.S. coal miners. The rollout of vaccines and easing out of pandemic-related restrictions have revived industrial and commercial activities across the globe, spurring electricity demand. EIA expects the United States coal production volumes to increase 5% in 2022 to touch 606 MMst (millions of short tons) and improve further by 3% in 2023 to hit 624.3 MMst. Per the World Steel Association, global steel demand will improve 2.2% in 2022 to reach 1,896.4 Mt. Coal plays an important role in steel production. Consequently, metallurgical and thermal coal export volumes are likely to increase in 2022 and 2023. Per EIA, coal exports were 85.6 MMst in 2021, up 24% from 2020, and will rise 3.6% year over year to 88.7 MMst in 2022. Coal exports in 2023 are expected to improve further by 4.3% to touch 92.5 MMst. Apart from strong demand from steel units, per EIA, higher international coal prices compared with U.S. produced coal are a primary reason behind the increase in export volumes.

Global Coal Demand and Prices to Move Upward: Coal was continuously losing ground to natural gas and other renewable energy as a fuel source, but a global economic recovery in 2021 resulted in a rebound in demand. Per the International Energy Agency (“IEA”), the demand for coal can attain new highs in 2022 due to a rebound in the global economy, aided by demand arising from the Asian countries. Even though the rising usage of renewable energy will pose a big challenge for coal, the demand and use of the commodity will not fall in the Asian economies. This, in turn, would continue to boost the prospects of U.S. coal miners. The ongoing military conflict in Ukraine has hampered the supply of coal volumes from Russia to other countries, creating coal export opportunities for U.S. coal producers.

New Emission Policy Will Hurt Coal Industry: The improvement in demand for coal is expected to be short-lived as the new environmental policy will target 100% carbon pollution-free electricity by 2035, which will significantly lower the demand for coal from the U.S. electricity space. Unless utility operators invest heavily in pollution-control measures to reduce emissions from power plants, domestic coal usage will fall significantly. The new policy will also aim at lowering greenhouse emissions by 50-52% by 2030 from the 2005 levels. Going forward, coal industry operators are likely to face many difficulties as a number of electric utilities have decided to become carbon neutral by 2050 and completely cut down coal usage.

Zacks Industry Rank Indicates Strong Prospects

The Zacks Coal industry is a eight-stock group within the broader Zacks Oil and Energy sector. The industry currently carries a Zacks Industry Rank #110, which places it in the top 47% of more than 249 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates strong performance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 43% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. Since March 2021, the industry’s earnings estimates for 2022 have gone up 561%.

Before we present a few coal stocks that you may want to consider, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Outperforms S&P 500 & Sector

The Zacks Coal industry has outperformed the Zacks S&P 500 composite and the Zacks Oil and Gas sector over the past 12 months.

The stocks in the coal industry have gained 133.5% compared with the Zacks Oil-Energy sector’s growth of 29.3%. The Zacks S&P 500 composite has rallied 12.9% in the same time frame.

One Year Price Performance



Coal Industry's Current Valuation

Since coal companies have a lot of debt on their balance sheet, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio.

The industry is currently trading at a trailing 12-month EV/EBITDA of 4.64X compared with the Zacks S&P 500 composite’s 14.09X and the sector’s 5.15X.

Over the past five years, the industry has traded as high as 7.5X, as low as 2.71X and at the median of 4.68X.

Enterprise Value-to EBITDA (EV/EBITDA) Ratio vs S&P 500


Enterprise Value-to EBITDA (EV/EBITDA) Ratio vs Sector



4 Coal Industry Stocks to Keep a Close Watch On

Peabody Energy: St Louis, MO-based Peabody Energy engages in the coal mining business and has both thermal and metallurgical operations. In 2021, nearly 26% of the company’s revenues was derived from five customers with whom it still has 17 coal supply agreements (excluding trading and brokerage transactions) expiring at various periods from 2022 to 2025. This assures a steady flow of revenues.

The Zacks Consensus Estimate for Peabody Energy’s 2022 earnings and revenues suggests a year-over-year rise of 82.3% and 25.3%, respectively. Over the past 60 days, this company’s Zacks Consensus Estimate for 2022 has gone up 62.8%. The stock has gained 424.2% over the past 12 months compared with industry’s rally of 144%.

Peabody Energy currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: BTU

Arch Resources Inc.: St. Louis, MO-based Arch Resources currently having a Zacks Rank #3 (Hold). The company produces and sells metallurgical and thermal coal. The company commenced longwall production at the Leer South mine, which will add high-quality 3 million tons of metallurgical coal annually to its total production. The ongoing rebound in production in the steel industry will create fresh demand for met coal supplied by the company.

The Zacks Consensus Estimate for its 2022 earnings and revenues indicates a year-over-year rise of 84.3% and 29.9%, respectively. Over the past 60 days, this company’s Zacks Consensus Estimate for 2022 earnings has gone up 0.6%. The stock has gained 188.8% over the past 12 months.

Price and Consensus: ARCH

Warrior Met Coal Inc: Brookwood, AL-based Warrior Met, currently having a Zacks Rank of 3, produces and exports non-thermal metallurgical coal for the global steel industry. The company produces coal from two highly productive underground mines in Alabama and has an estimated annual production capacity of more than 7 million metric tons of coal.

The Zacks Consensus Estimate for 2022 earnings and revenues implies a year-over-year rise of 108.5% and 12.7%, respectively. Over the past 60 days, this company’s the Zacks Consensus Estimate for 2022 earnings has gone up 4.1%. The stock has gained 87.2% over the past 12 months.

Price and Consensus: HCC

CONSOL Energy: Canonsburg, PA-based CONSOL Energy, having a Zacks Rank of 3, produces and exports bituminous thermal coal. The company owns and operates the Pennsylvania Mining Complex and the Baltimore Marine Terminal, and controls more than 1 billion tons of undeveloped reserves. The company is consistently operating its four longwalls and utilized the fifth longwall in 2021 to meet increasing demand.

The Zacks Consensus Estimate for 2022 earnings and revenues suggests a year-over-year rise of 292.7% and 16.3%, respectively. Over the past 60 days, this company’s Zacks Consensus Estimate for 2022 earnings has gone 4.7%. The stock has gained 218.1% over the past 12 months.

Price and Consensus: CEIX




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Peabody Energy Corporation (BTU) : Free Stock Analysis Report

Warrior Met Coal (HCC) : Free Stock Analysis Report

Arch Resources Inc. (ARCH) : Free Stock Analysis Report

Consol Energy Inc. (CEIX) : Free Stock Analysis Report

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