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Are Coal Stocks the Big Winners from the Climate Rule Repeal?

Zacks Equity Research

Keeping his pre-election campaign promise, President Trump has signed the Energy Independence Executive Order. The primary objective of this order is to repeal the Clean Power Plan and other regulations that threaten the operation of coal mines and energy sector workers.

In a bid to extend further support toward the usage of fossil fuel (primarily coal), Trump might pull out from the Paris Climate deal as well. Notably, the U.S. was one among the 194 countries that had agreed to lower emission in April last year.

Trump’s view of climate change being “a Chinese hoax” aimed to make U.S. manufacturing “non-competitive” will definitely keep fossil fuel based electricity generation afloat longer than expected. Given his stance, we can expect the new policies to help the coal industry survive and prosper from its current levels.

Benefits to Coal Industry

It is a well-documented fact that the U.S. coal industry has been facing challenges from stringent environmental regulations for the last few years. The steps taken by the President will no doubt boost the prospects of the coal industry.

Apart from stringent regulations, the abundance of cheap natural gas also played a role in pushing away coal as a favored choice of fuel in utilities. As per the National Mining Association, the Clean Power Plan would have lowered U.S. coal production by 242 million tons.

However, the coal industry received a boost post the election of Trump and has gained 10.9% in the last six months, higher than the S&P 500’s gain of 7.6%.

The recent U.S. Energy Information Administration (EIA) release echoes similar positive views. EIA expects growth in coal-fired electricity generation to contribute to a 4% increase in coal production in 2017. In addition coal prices are expected to increase in 2017 and 2018 to $2.17/MMBtu and $2.21/MMBtu, respectively, from $2.11/MMBtu in 2016.

The report also projects that with the implementation of the Clean Power Plan, nearly 100 GW of coal fired power generation will be taken out of the system in the 2016 to 2040 time period, while on the other hand, without the plan, only 60 GW coal fired units will be taken out in the same time period. It is clearly evident that coal producers will benefit for a longer period of time in the absence of the plan.



Coal Stocks Poised to Gain

The coal industry friendly policies and the probability of repealing the federal tax credit on solar and wind power generation could further boost the prospects of coal operators.

Let’s focus on some coal miners, which are well poised to gain from the new policies.

Alliance Holdings GP, L.P., AHGP, along with its subsidiaries, produces and markets coal primarily to utilities and industrial users in the U.S. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alliance Holdings GP, L.P. Price and EPS Surprise

 

Alliance Holdings GP, L.P. Price and EPS Surprise | Alliance Holdings GP, L.P. Quote

The partnership reported positive earnings surprises in three out of the last four quarters with an average positive of 5.5%. The Zacks Consensus Estimate for 2017 moved up 37.6% to $2.78 in last 60 days.

Arch Coal, Inc. ARCH, another Zacks Rank #1 stock, produces and sells thermal and metallurgical coal from surface and underground mines.

Arch Coal Inc. Price and EPS Surprise

 

Arch Coal Inc. Price and EPS Surprise | Arch Coal Inc. Quote

The company reported a whopping positive earnings surprise of 5,400% in the last quarter. The Zacks Consensus Estimate for 2017 moved up 43.2% to $8.32 in the last 60 days.

Alliance Resource Partners, L.P. ARLP produces and markets coal primarily to utilities and industrial users in the U.S. It carries a Zacks Rank #2 (Buy).

Alliance Resource Partners, L.P. Price and EPS Surprise

 

Alliance Resource Partners, L.P. Price and EPS Surprise | Alliance Resource Partners, L.P. Quote

The partnership reported  positive earnings surprises in three out of the last four quarters, with an average positive surprise of 25.7%. The Zacks Consensus Estimate for 2017 moved up 39.4% to $2.69 in last 60 days.

CONSOL Energy Inc. CNX, a multi-fuel energy producer and energy services provider, caters to U.S. and international power producers. The company currently carries a Zacks Rank #3 (Hold).

CONSOL Energy Inc. Price and EPS Surprise

 

CONSOL Energy Inc. Price and EPS Surprise | CONSOL Energy Inc. Quote

The company reported positive earnings surprises in two out of the last four quarters with an average positive surprise of 15.6%. The Zacks Consensus Estimate for 2017 moved up 58.1% to 49 cents in the last 60 days.

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CONSOL Energy Inc. (CNX): Free Stock Analysis Report
 
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Arch Coal Inc. (ARCH): Free Stock Analysis Report
 
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