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4 Coal Stocks to Gain on Rising Demand Despite Emission Concerns
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The Zacks Coal industry stocks have been under tremendous stress due to concerns about the impact of rising emissions. Coal is gradually losing ground to natural gas and clean alternate sources of energy. The decline in prices and demand has been hurting the profit levels of coal operators over the past few years. However, with the gradual rollout of vaccines and improving global economic activity, electricity demand is increasing and utility operators are buying more coal to step up production. Stocks like Peabody Energy Corporation (BTU - Free Report) , which have exposure in thermal coal and metallurgical (met) coal, are well poised to benefit from the revival in the domestic and international coal markets. Other coal stocks that are poised to benefit from an expected increase in U.S. met coal export in 2021 are CONSOL Energy Inc. (CEIX - Free Report) , SunCoke Energy Inc. (SXC - Free Report) and Ramaco Resources (METC - Free Report) as steel production is expected to increase during the 2021-2022 time period in the European and Asian countries.
About the Industry
The Zacks Coal industry comprises companies that are 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, and in steel and cement manufacturing. Per The U.S. Energy Information Administration (“EIA”) report, the current U.S. estimated recoverable coal reserves is 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 in 2021. This would result in additional demand for coal.
3 Trends Likely to Impact the Coal Industry
Losing Ground to Clean Energy Sources: The U.S.-based coal companies are presently fighting a lost cause. Clean energy sources like natural gas and renewable energy are now preferred to coal for their energy needs. The availability of cheap shale gas in the United States, technological advancement and incentives on the usage of renewable energy continue to cut down the popularity of coal as a source of energy. The outbreak of the novel coronavirus also adversely impacted demand for coal globally. A transition is quite evident with utilities currently favoring clean energy sources. Utilities are targeting net-zero emission, shutting down coal-fired plants and replacing electricity generation with clean sources. The domestic consumption of coal will drop further over the long term as quite a few coal-fired plants are scheduled to be shut down by 2030. Per a report of environmental group Sierra Club, since 2010, 63% of U.S. coal-fired plants have been retired or committed to retiring by 2030. However, the EIA sees a temporary respite for coal as a rise in natural gas prices in the United States is expected to create demand for coal in the domestic markets. Electric power generators are switching to coal from natural gas. Per EIA, coal consumption in the U.S. Electric Power sector is likely to increase 16.4% year over year to 508.2 million short tons (“MMst”) in 2021.
Coal Exports Likely to Rise: Coal exports have been aiding U.S. miners to regain some lost ground. After the lockdown-induced adverse effects on industrial and commercial activities across the globe in 2020, the EIA has noted a revival post pandemic. This has, for instance, led to improving steel production in the European and Asian countries. Consequently, power demand on a global scale, and metallurgical and thermal coal export volumes are likely to increase in 2021. Per EIA, coal exports will total 80.6 MMst in 2021, up 16.7% from 2020 and rise further by 14.3% year over year to 92.2 MMst in 2022.
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 usage of coal will drop 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 difficulty as a number of electricity generators have decided to become carbon neutral by 2050 and completely cut down coal usage.
Zacks Industry Rank Indicates Weak Prospects
The Zacks Coal industry is an 8-stock group within the broader Zacks Oil and Energy sector. The industry currently carries a Zacks Industry Rank #189, which places it in the bottom 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates weak performance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 25% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since August 2020, the industry’s earnings estimate for 2021 has gone down by 126.5%.
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 97.4% compared with the Zacks Oil-Energy sector’s growth of 37.5%. The Zacks S&P 500 composite has rallied 38.5% 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 5.78X compared with the Zacks S&P 500 composite’s 17.34X and the sector’s 5.84X.
Over the past five years, the industry has traded as high as 6.7X, as low as 2.7X and at the median of 4.37X.
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. Nearly 32% of the company’s revenues in 2020 were derived from five customers with whom it still has 28 coal supply agreements (excluding trading and brokerage transactions) expiring at various periods from 2021 to 2026. This assures a steady flow of revenues.
The Zacks Consensus Estimate for Peabody Energy’s 2021 earnings and revenues suggests a year-over-year rise of 89.9% and 1.9%, respectively. Over the past 60 days, this company has seen the Zacks Consensus Estimate for 2021 go up by 1.5%. The stock has gained 144.9% over the past 12 months.
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 over 1 billion tons of undeveloped reserves. The company is consistently operating its four longwalls but to meet increasing demand, CONSOL Energy also utilized the fifth longwall during the first quarter 2021.
The Zacks Consensus Estimate for 2021 earnings and revenues points to a year-over-year rise of 572.9% and 14.6%, respectively. Over the past 60 days, this company has seen the Zacks Consensus Estimate for 2021 earnings go up by 44.4%. The stock has gained 187.7% over the past 12 months.
Price and Consensus: CEIX
SunCoke Energy: Lisle, IL-based SunCoke Energy, having a Zacks Rank of 3, is a raw material processing and handling company serving steel and power customers, with principal businesses in cokemaking and logistics. With annual 5.9 million tons of coke-making capacity, it is poised to benefit from an export revival and a recovery in the steel industry through 2021.
The Zacks Consensus Estimate for 2021 earnings and revenues suggests a year-over-year growth of 5000% and 6.9%, respectively. Over the past 60 days, this company has seen the Zacks Consensus Estimate for 2021 earnings go up by 2%. The stock has gained 134.9% over the past 12 months.
Price and Consensus: SXC
Ramaco Resources: Lexington, KY-based Ramaco Resources is a Zacks Rank #3 stock. The company produces and sells metallurgical coal. The company has in excess of 262 million tons of high-quality coal reserves and is well positioned to sell coal to domestic as well as international markets. Its low debt and minimal legacy liabilities provide it with financial flexibility. The company supplies a substantial volume of high-quality met coal to domestic steel companies.
The Zacks Consensus Estimate for its 2021 earnings and revenues points to a year-over-year rise of 425% and 23.5%, respectively. Over the past 60 days, this company has seen the Zacks Consensus Estimate for 2021 earnings go up by 50%. The stock has gained 146.9% over the past 12 months.
Price and Consensus: METC
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Image: Bigstock
4 Coal Stocks to Gain on Rising Demand Despite Emission Concerns
The Zacks Coal industry stocks have been under tremendous stress due to concerns about the impact of rising emissions. Coal is gradually losing ground to natural gas and clean alternate sources of energy. The decline in prices and demand has been hurting the profit levels of coal operators over the past few years. However, with the gradual rollout of vaccines and improving global economic activity, electricity demand is increasing and utility operators are buying more coal to step up production. Stocks like Peabody Energy Corporation (BTU - Free Report) , which have exposure in thermal coal and metallurgical (met) coal, are well poised to benefit from the revival in the domestic and international coal markets. Other coal stocks that are poised to benefit from an expected increase in U.S. met coal export in 2021 are CONSOL Energy Inc. (CEIX - Free Report) , SunCoke Energy Inc. (SXC - Free Report) and Ramaco Resources (METC - Free Report) as steel production is expected to increase during the 2021-2022 time period in the European and Asian countries.
About the Industry
The Zacks Coal industry comprises companies that are 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, and in steel and cement manufacturing. Per The U.S. Energy Information Administration (“EIA”) report, the current U.S. estimated recoverable coal reserves is 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 in 2021. This would result in additional demand for coal.
3 Trends Likely to Impact the Coal Industry
Losing Ground to Clean Energy Sources: The U.S.-based coal companies are presently fighting a lost cause. Clean energy sources like natural gas and renewable energy are now preferred to coal for their energy needs. The availability of cheap shale gas in the United States, technological advancement and incentives on the usage of renewable energy continue to cut down the popularity of coal as a source of energy. The outbreak of the novel coronavirus also adversely impacted demand for coal globally. A transition is quite evident with utilities currently favoring clean energy sources. Utilities are targeting net-zero emission, shutting down coal-fired plants and replacing electricity generation with clean sources. The domestic consumption of coal will drop further over the long term as quite a few coal-fired plants are scheduled to be shut down by 2030. Per a report of environmental group Sierra Club, since 2010, 63% of U.S. coal-fired plants have been retired or committed to retiring by 2030. However, the EIA sees a temporary respite for coal as a rise in natural gas prices in the United States is expected to create demand for coal in the domestic markets. Electric power generators are switching to coal from natural gas. Per EIA, coal consumption in the U.S. Electric Power sector is likely to increase 16.4% year over year to 508.2 million short tons (“MMst”) in 2021.
Coal Exports Likely to Rise: Coal exports have been aiding U.S. miners to regain some lost ground. After the lockdown-induced adverse effects on industrial and commercial activities across the globe in 2020, the EIA has noted a revival post pandemic. This has, for instance, led to improving steel production in the European and Asian countries. Consequently, power demand on a global scale, and metallurgical and thermal coal export volumes are likely to increase in 2021. Per EIA, coal exports will total 80.6 MMst in 2021, up 16.7% from 2020 and rise further by 14.3% year over year to 92.2 MMst in 2022.
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 usage of coal will drop 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 difficulty as a number of electricity generators have decided to become carbon neutral by 2050 and completely cut down coal usage.
Zacks Industry Rank Indicates Weak Prospects
The Zacks Coal industry is an 8-stock group within the broader Zacks Oil and Energy sector. The industry currently carries a Zacks Industry Rank #189, which places it in the bottom 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates weak performance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 25% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since August 2020, the industry’s earnings estimate for 2021 has gone down by 126.5%.
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 97.4% compared with the Zacks Oil-Energy sector’s growth of 37.5%. The Zacks S&P 500 composite has rallied 38.5% 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 5.78X compared with the Zacks S&P 500 composite’s 17.34X and the sector’s 5.84X.
Over the past five years, the industry has traded as high as 6.7X, as low as 2.7X and at the median of 4.37X.
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. Nearly 32% of the company’s revenues in 2020 were derived from five customers with whom it still has 28 coal supply agreements (excluding trading and brokerage transactions) expiring at various periods from 2021 to 2026. This assures a steady flow of revenues.
The Zacks Consensus Estimate for Peabody Energy’s 2021 earnings and revenues suggests a year-over-year rise of 89.9% and 1.9%, respectively. Over the past 60 days, this company has seen the Zacks Consensus Estimate for 2021 go up by 1.5%. The stock has gained 144.9% over the past 12 months.
Peabody Energy currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: BTU
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 over 1 billion tons of undeveloped reserves. The company is consistently operating its four longwalls but to meet increasing demand, CONSOL Energy also utilized the fifth longwall during the first quarter 2021.
The Zacks Consensus Estimate for 2021 earnings and revenues points to a year-over-year rise of 572.9% and 14.6%, respectively. Over the past 60 days, this company has seen the Zacks Consensus Estimate for 2021 earnings go up by 44.4%. The stock has gained 187.7% over the past 12 months.
Price and Consensus: CEIX
SunCoke Energy: Lisle, IL-based SunCoke Energy, having a Zacks Rank of 3, is a raw material processing and handling company serving steel and power customers, with principal businesses in cokemaking and logistics. With annual 5.9 million tons of coke-making capacity, it is poised to benefit from an export revival and a recovery in the steel industry through 2021.
The Zacks Consensus Estimate for 2021 earnings and revenues suggests a year-over-year growth of 5000% and 6.9%, respectively. Over the past 60 days, this company has seen the Zacks Consensus Estimate for 2021 earnings go up by 2%. The stock has gained 134.9% over the past 12 months.
Price and Consensus: SXC
Ramaco Resources: Lexington, KY-based Ramaco Resources is a Zacks Rank #3 stock. The company produces and sells metallurgical coal. The company has in excess of 262 million tons of high-quality coal reserves and is well positioned to sell coal to domestic as well as international markets. Its low debt and minimal legacy liabilities provide it with financial flexibility. The company supplies a substantial volume of high-quality met coal to domestic steel companies.
The Zacks Consensus Estimate for its 2021 earnings and revenues points to a year-over-year rise of 425% and 23.5%, respectively. Over the past 60 days, this company has seen the Zacks Consensus Estimate for 2021 earnings go up by 50%. The stock has gained 146.9% over the past 12 months.
Price and Consensus: METC
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>