The economic significance of coal is known to all. It is considered the most authentic, affordable, and abundant source of electricity generation. Even though it is one of the largest contributors of carbon dioxide emissions as well, shifting towards renewable energy sources could take some time, and the demand for coal could remain robust in 2023.
Against this backdrop, let us probe into coal stocks Yankuang Energy Group Company Limited (YZCAY), CONSOL Energy Inc. (CEIX), and American Resources Corporation (AREC).
But before we discuss the fundamentals of the aforementioned coal stocks, let us briefly discuss the coal industry.
Coal, considered the most abundant energy resource, is a combustible non-renewable fossil fuel used to generate electricity and should continue to play a crucial role in industries such as iron and steel until cleaner technologies become widespread.
According to Ember, a climate think tank, coal generated more than 36% of the world’s electricity in 2022, making it by far the biggest source. Since coal is the largest source of carbon dioxide emission, we witness the incessant efforts of major economies to transition to cleaner sources of energy.
However, the transition to non-carbon emitting sources is not happening fast enough to avoid climate chaos.
In addition, for developing countries, coal is a convenient and cheap source of power. The use of coal has grown almost continuously in China and India, the two biggest coal-consuming countries, for decades. The global coal market is expected to grow to $658.68 billion in 2027 at a CAGR of 1.4%.
Given this backdrop, quality coal stocks YZCAY and CEIX could be wise portfolio additions now.
However, the climate pledges taken up by the major economies might have an impact on the coal industry in the upcoming years. As per Energy Information Administration (EIA), there would be 15% (36 TWh) less U.S. coal-fired generation in the summer of 2023 compared with the summer of 2022.
Therefore, fundamentally bleak stock AREC could be best avoided now.
Stocks to Buy:
Yankuang Energy Group Company Limited (YZCAY)
Based in Zoucheng, the People’s Republic of China, YZCAY engages in the mining, preparation, and sale of coal worldwide.
YZCAY pays an annual dividend of $4.34, which translates to a dividend yield of 16.55% on the current share prices. Its four-year average yield is 14%. The company’s dividend payouts have grown at a CAGR of 45.1% over the past three years and 68.6% over the past five years.
YZCAY’s forward EV/Sales of 1.41x is 26% lower than the 1.91x industry average. Its 3.88x forward EV/EBIT is 53% lower than the 8.25x industry average. Likewise, its forward Price/Sales multiple of 0.72 is 40.6% lower than the industry average of 1.22.
YZCAY’s trailing-12-month levered FCF margin of 14.90% is 157.5% higher than the 5.79% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 33.71%, 17.79%, and 9.85% are 43.6%, 58.6%, and 11.1% higher than the industry averages of 23.48%, 11.21%, and 8.87%, respectively.
For the fiscal first quarter that ended March 2023, YZCAY’s total operating revenue stood at RMB44.42 billion ($6.27 billion), up 7.8% year-over-year. Its net profit stood at RMB6.94 billion ($980.26 million). Its earnings per share stood at RMB1.15 for the same quarter.
YZCAY’s total current assets, as of March 31, 2023, stood at RMB96.14 billion ($13.58 billion), compared to RMB88.74 billion ($12.53 billion) as of December 31, 2022.
For the year ending December 2023, its revenue is expected to come in at $17.91 billion. The consensus revenue estimate of $18.89 billion for the year ending December 2024 represents a 5.5% increase year-over-year.
The stock gained 2.9% intraday to close its last trading session at $26.98.
YZCAY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
YZCAY has a B grade for Value, Stability, and Quality. Within the A-rated 11-stock Coal industry, it is ranked first.
Click here for the POWR Ratings for Growth, Sentiment, and Momentum for YZCAY.
CONSOL Energy Inc. (CEIX)
CEIX produces and exports bituminous coal. The company’s Pennsylvania Mining Complex segment mines, prepares, and markets bituminous coal to power generators and industrial end-users. Its CONSOL Marine Terminal segment provides coal export terminal services through the Port of Baltimore.
During the first quarter of 2023, CEIX repurchased 1.2 million shares of its common stock, or approximately 3.5% of its public float, for $67.1 million at a weighted average price of $55.60 per share.
In addition, CEIX announced a dividend of $1.10 per share, payable to shareholders on May 23, 2023. Its annual dividend of $4.40 yields 7.27% on the current share price. Its four-year average yield is 0.79%.
Combined with a $67.1 million share repurchase, aggregate dividend payment of approximately $37.3 million represent approximately 47% of the free cash flow generated in the first quarter of 2023.
CEIX’s forward EV/Sales of 0.83x is 56.5% lower than the 1.91x industry average. Its 2.39x forward EV/EBIT is 71.1% lower than the 8.25x industry average. Likewise, its forward Price/Sales multiple of 0.82 is 32.9% lower than the industry average of 1.22.
CEIX’s trailing-12-month levered FCF margin of 16.58% is 186.6% higher than the 5.79% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 72.01%, 37.14%, and 26.04% are 206.7%, 231.2%, and 193.5% higher than the industry averages of 23.48%, 11.21%, and 8.87%, respectively.
CEIX’s total revenue and other income for the fiscal first quarter that ended March 31, 2023, increased 92.1% year-over-year to $688.61 million. Its net income and earnings per share stood at $230.37 million and $6.55, compared to a net loss and loss per share of $4.45 million and $0.13, respectively, in the year-ago quarter. Its adjusted EBITDA increased 104.6% year-over-year to $346.30 million.
Analysts expect CEIX’s revenue and EPS for the fiscal second quarter ending June 2023 to increase 8.4% and 31.6% year-over-year to $590.10 million and $4.70, respectively. It surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
CEIX has gained 9.5% intraday to close the last trading session at $66.25. Moreover, it has gained 29.6% over the past three months.
CEIX’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 an A grade for Quality and a B for Value and Sentiment. It is ranked second within the same industry.
Click here to see the other ratings of CEIX for Growth, Momentum, and Stability.
Stock to Avoid:
American Resources Corporation (AREC)
AREC engages in the extraction, processing, transportation, distribution, and sale of metallurgical coal to steel industries. The company supplies raw materials and sells coal used in pulverized coal injections.
AREC’s trailing-12-month gross profit margin of 35.18% is 25.1% lower than the 46.94% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of negative 97.27%, 97.15%, and 3.64%, compare to the industry averages of 23.48%, 11.21%, and 8.87%, respectively.
AREC’s forward Price/Sales of 1.94x is 59.4% higher than the 1.22x industry average. Its 17.84x trailing-12-month Price/Book is significantly higher than the 1.48x industry average.
For the fiscal first quarter that ended March 31, 2023, AREC’s total revenue decreased 2.3% year-over-year to $8.87 million. Its net loss from operations stood at $2.64 million, while its adjusted EBITDA loss widened 66.9% year-over-year to $1.59 million.
The company’s net loss widened 12.6% year-over-year to $3.10 million, whereas its loss per share came in at $0.04.
For the fiscal year ending December 2023, AREC’s EPS is expected to decline 350% to negative $0.09. On the other hand, its revenue is expected to come in at $69.45 million. It failed to surpass its consensus revenue in all four trailing quarters, which is disappointing.
AREC gained 2.3% intraday to close the last trading session at $1.76.
AREC’s bleak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, translating to Sell in our proprietary rating system.
AREC has a D grade for Value, Stability, and Quality. AREC is ranked last in the same industry.
Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, and Sentiment. Click here to get all ratings of AREC.
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YZCAY shares were trading at $27.30 per share on Friday morning, up $0.32 (+1.18%). Year-to-date, YZCAY has declined -10.26%, versus a 15.70% 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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