Despite the heightened emphasis on eco-friendly energy substitutes, the escalating demand for coal due to its affordability and ease of transport and storage solidifies its growth projections.
Given this backdrop, investing in fundamentally strong coal stocks Warrior Met Coal, Inc. (HCC), Hallador Energy Company (HNRG), and CONSOL Energy Inc. (CEIX) with swift momentum potential could be wise.
Before delving into the fundamentals of the stocks, it's first essential to understand the factors currently molding the landscape of the coal industry.
Several countries have embarked on extensive climate strategies to eradicate coal within the upcoming years. Nevertheless, the ongoing gas shortages and the slow growth in renewable energy capacity underscore that coal remains an indispensable resource for power generation and industrial usage in several regions.
Despite its unswerving reliability as a power source, coal is the preeminent contributor to carbon dioxide emissions. Accordingly, the ongoing endeavors by top global nations to supplant coal with renewable energy sources are anticipated to usher in a steady and drawn-out decline in coal consumption in the foreseeable future. However, this transition is slow.
Despite the climate pledges invoked by several key global entities, overcoming coal reliance could be a daunting task, as consumption could scale to an unprecedented height again.
As per the International Energy Agency, investments in world coal production and supply are expected to rise about 10% to $150 billion in 2023. Roughly 90% of this investment is projected to be concentrated in the Asia Pacific region, particularly in China and India, where both nations have aimed at broadening production and inaugurating new coal mines.
Moreover, as these two nations carry the largest populations worldwide, the impending need to satiate rapidly escalating power demands is forecasted to invigorate the industry now and beyond. The global coal market is expected to grow to $2.1 trillion in 2031 at a CAGR of 4.4%.
Considering these conducive trends, let's look at the fundamentals of the three A-rated Coal industry stocks, starting with number 3.
Stock #3: Warrior Met Coal, Inc. (HCC)
HCC produces and exports non-thermal metallurgical coal for the steel industry. It operates two underground mines located in Alabama.
On October 24, HCC’s board declared a regular quarterly dividend of $0.07 per share, totaling approximately $3.7 million, payable to the stockholders on November 10.
Its annual dividend rate of $0.28 per share translates to a 0.57% yield on the current price level. Its dividends grew at 11.9% and 7% CAGRs over the past three and five years, respectively. Its four-year average dividend yield is 5.75%.
HCC’s trailing-12-month EBITDA and net income margins of 40.46% and 27.11% are 140.9% and 361.9% higher than the industry averages of 16.80% and 5.87%, respectively. Its trailing-12-month levered FCF margin of 4.29% is 1.6% higher than the industry average of 4.22%.
In the fiscal third quarter that ended September 30, 2023, HCC’s total revenues grew 8.5% year-over-year to $423.49 million, while its operating income stood at $107.75 million. Its adjusted EBITDA came at $145.78 million.
The company’s adjusted net income and adjusted net income per share amounted to $96.59 million and $1.85, respectively. As of September 30, 2023, its long-term debt stood at $152.88 million, compared to $302.59 million as of December 31, 2022.
Street expects HCC’s revenue and EPS for the fiscal fourth quarter ending December 2023 to increase 10.1% and 23.7% year-over-year to $379.61 million and $2.35, respectively.
Over the past year, HCC has gained 29%, closing the last trading session at $49.07. It gained 41.7% year-to-date. The stock is trading above its 100-day and 200-day moving averages of $43.29 and $39.89, respectively, indicating an uptrend.
HCC’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
HCC has a B grade for Momentum and Quality. It has ranked #6 in the 11-stock A-rated Coal industry.
Beyond what we have mentioned above, to see the additional POWR Ratings for Growth, Value, Stability, and Sentiment for HCC, click here.
Stock #2: 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, 2023, HNRG secured a new $140 million credit agreement with PNC Bank as the administrative agent. This agreement extends through 2026 and involves converting $65 million of existing debt into a new term loan with a maturity date of March 31, 2026, along with a $75 million revolver with a maturity of July 31, 2026.
The amendment also raises the maximum annual capital expenditure limit to $100 million. HNRG’s CEO, Brent Bilsland, appreciated the increased liquidity and flexibility the amendment provides, particularly following the Merom Power Plant acquisition in October 2022.
HNRG’s trailing-12-month levered FCF margin of 18.11% is 209% higher than the industry average of 5.86%. Its trailing-12-month asset turnover ratio of 1.20x is 110.3% higher than the 0.57x industry average.
HNRG’s total revenue for the fiscal third quarter that ended September 30, 2023, increased 94.8% year-over-year to $165.77 million. Its income from operations came in at $23.80 million, up 341.2% from the year-ago quarter. Its adjusted EBITDA increased 95.5% year-over-year to $35.92 million.
The company’s net income and net income per share increased 897.2% and 780% year-over-year to $16.08 million and $0.44, respectively. As of September 30, 2023, its total current liabilities came at $171.59 million, compared to $239.60 million as of December 31, 2022.
Analysts expect HNRG’s revenue and EPS for the fiscal year ending December 2023 to increase 99.2% and 235.1% year-over-year to $721 million and $1.91, respectively.
The stock has gained 65.6% over the past year to close the last trading session at $13.38. It has returned 74.5% over the past six months. The stock is trading above its 100-day and 200-day moving averages of $11.33 and $9.84, respectively.
HNRG’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Momentum, and Sentiment. Within the same industry, it is ranked #4.
Click here for HNRG’s additional POWR Ratings (Stability and Quality).
Stock #1: CONSOL Energy Inc. (CEIX)
CEIX produces and exports bituminous coal. Its Pennsylvania Mining Complex segment mines, prepares, and markets this coal to power generators and industrial and metallurgical end-users. Meanwhile, the CONSOL Marine Terminal segment offers coal export terminal services via the Port of Baltimore.
With the $120.43 million free cash flow generated during the third quarter of 2023, CEIX repurchased 976 thousand shares of its common stock for $93 million at a weighted average price of $95.22 per share.
CEIX’s trailing-12-month EBITDA and net income margins of 43.62% and 27.51% are 13.1% and 95.7% higher than the industry averages of 38.58% and 14.06%, respectively. Its trailing-12-month levered FCF margin of 20.60% is 251.5% higher than the industry average of 5.86%.
For the fiscal third quarter that ended September 30, 2023, CEIX’s revenue and other income increased 1.5% year-over-year to $569.86 million. Its earnings before income tax stood at $121.76 million. In addition, the company’s net income and total earnings per share stood at $100.73 million and $3.11, respectively.
For the nine months that ended September 30, 2023, its net cash provided by operating activities increased 27.8% year-over-year to $638.82 million. Moreover, as of September 30, 2023, its total long-term debt came at $188.83 million, compared to $355.34 million as of December 31, 2022.
The consensus revenue and EPS estimates of $2.53 billion and $20.09 for the fiscal year ending December 2023 reflect 20.5% and 66.3% year-over-year growth, respectively. The company surpassed consensus revenue and EPS estimates in three of the trailing four quarters.
CEIX’s shares have gained 48.1% year-to-date to close the last trading session at $96.24. Over the past year, it gained 44.3%. The stock is trading above its 100-day and 200-day moving averages of $85.48 and $71.82, respectively.
CEIX’s positive fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
CEIX has an A grade for Quality and a B for Growth and Momentum. It has ranked #3 within the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see CEIX’s ratings for Value, Stability, and Sentiment here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CEIX shares were unchanged in premarket trading Tuesday. Year-to-date, CEIX has gained 53.80%, versus a 15.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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