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Zacks Industry Outlook Highlights Warrior Met Coal, SunCoke Energy and Hallador Energy
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For Immediate Release
Chicago, IL – June 29, 2023 – Today, Zacks Equity Research discusses Warrior Met Coal (HCC - Free Report) , SunCoke Energy (SXC - Free Report) and Hallador Energy Company .
The Zacks Coal industry stocks staged a rebound in 2022, courtesy of global demand and surging natural gas prices. In 2023, the demand for coal will suffer due to lesser coal utilization in the United States to produce electricity, planned retirement of coal units and the utilization of more renewable sources for electricity generation. The ongoing energy transition, with utility operators steadily phasing out coal units, will adversely impact the coal industry. Then again, the persisting conflict between Russia and Ukraine is creating fresh demand from coal-importing countries. Hence, coal export from the United States is expected to improve in 2023 from the year-ago level.
Despite a drop in coal production, improving cost export volumes and low-cost coal production assets are likely to boost the prospects of Warrior Met Coal. Other coal stocks, SunCoke Energy and Hallador Energy Company, are expected to gain during this difficult phase of the coal industry.
About the Industry
The Zacks Coal industry comprises companies involved in the discovery and mining of coal. Coal is mined through the opencast or the underground method. The commodity is valued for its energy content and used worldwide to generate electricity and manufacture steel and cement. 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 in the United States contribute nearly 70% of the yearly production and 60% of the coal production from surface mining. Per EIA, the demand for coal will decline due to the usage of more renewable assets and a gradual shutdown of coal-powered generation units, hurting the prospects of the coal industry.
3 Trends Likely to Impact the Coal Industry
Despite Reliability Emission Policy to Hurt Coal Industry: The improvement in demand for coal is 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. Per EIA, coal-fired electricity generation would drop from 20% in 2022 to 16% in 2023 and remain the same in 2024. Unless utility operators invest heavily in pollution-control measures to reduce emissions from power plants, domestic coal usage will fall drastically.
Coal industry operators should brace themselves for challenges as several electric utilities have decided to become carbon neutral by 2050 and completely cut down coal usage. Despite the emission, coal stocks are still relevant as the commodity is a reliable source of energy and ensures 24x7 electricity production from the generation units.
U.S. Coal Production Drops: Per EIA projection, coal production in the United States is expected to drop in 2023 and 2024 after showcasing an improvement in production volumes in the previous two years. EIA projects U.S. coal production to decline by 6% to about 560 million short tons (MMst) in 2023 and a further 14% to 480 MMst in 2024 due to the expected reduction in coal usage in electricity production in the the United States. This would hurt coal operators as they fight a tough battle against other sources of energy.
Coal to Benefit From Rising Exports: Despite an expected drop in the coal production volumes, coal operators in the United States can benefit from the expected rise in coal export volumes. Coal demand is expected to improve due to its economical pricing compared with other energy sources. Higher demand from the Asian market and an expected improvement in steel production should drive U.S. export volumes.
Coal is still a viable energy option for many crucial industries across the globe. Per EIA, coal export volume may increase by 18.9% in 2023 to 100.8 MMst and by 2.6% more to 103.4 MMst in 2024. The World Steel Association forecasts a rebound in global steel volume production, rising 2.3% in 2023 to touch 1,822.3 Mt and up 1.7% in 2024 to touch 1,854 Mt.
Steel production requires a lot of high-quality coal and nearly 70% of global steel production depends on coal. With the continued recovery in steel production, coal exports are expected to pick up and improve in the long run.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Coal industry is an 9-stock group within the broader Zacks Oil and Energy sector. The industry currently carries a Zacks Industry Rank #246, which places it in the bottom 2% out of 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates lackluster 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 bottom 50% 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 losing confidence in this group’s earnings growth potential. Since January 2023, the industry’s earnings estimates for 2023 have gone down by 22.2%.
Before we present a few coal stocks that you may want to keep track of, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Underperforms S&P 500 & Sector
The Zacks Coal industry has underperformed 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 1.2% compared with the Zacks Oil-Energy sector’s growth of 3.5%. The Zacks S&P 500 composite has rallied 14.6% in the same time frame.
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 2.29X compared with the Zacks S&P 500 composite’s 13.3X and the sector’s 2.77X.
In the past five years, the industry has traded as high as 7.6X, as low as 2.01X and at the median of 4.8X.
3 Coal Industry Stocks to Keep a Close Watch On
Warrior Met Coal, Inc.: Brookwood, AL-based Warrior Met produces and exports metallurgical coal for the steel industry. The company will benefit from the end of the labor strike and resulting incremental production volume as eligible employees return to work. Warrior Met plans to invest $420-$440 million in 2023 to further strengthen its coal operation.
The Zacks Consensus Estimate for second-quarter 2023 earnings has moved up by 17.3% to $2.10 per share in the past 60 days. Current dividend yield of the company is 0.75%, on par with industry’s yield of 0.75%. The stock has gained 7.9% in the past three months against its industry’s decline of 13.2%.
SunCoke Energy: Lisle, IL-based SunCoke Energy is a raw material processing and handling company serving steel and power customers, with principal businesses in cokemaking and logistics. With an annual 5.9 million tons of coke-making capacity, it is poised to benefit from rising met coal export and increasing demand for met coal from the steel industry. The company plans to invest $95 million in 2023 to expand its operations.
SunCoke Energy currently carries a Zacks Rank of 3. The Zacks Consensus Estimate for 2023 earnings has moved up by 1.3% in the past 60 days. The current dividend yield of the company is 4.12%. The stock has lost 11.6% in the past three months.
Hallador Energy Company: Terre Haute, IN-based Hallador Energy carries a Zacks Rank of 3. The company, through its subsidiaries, engages in the production of coal in Indiana for the electric utilities. Hallador Energy continues to acquire and develop new mines and explore opportunities in the coal space. The company plans to invest $69 million in 2023 to broaden and maintain its coal operations.
The Zacks Consensus Estimate for Hallador Energy 2023 and 2024 earnings suggests a year-over-year growth of 149.1% and 133.6%, respectively. The stock has lost 11.7% in the past three months.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Warrior Met Coal, SunCoke Energy and Hallador Energy
For Immediate Release
Chicago, IL – June 29, 2023 – Today, Zacks Equity Research discusses Warrior Met Coal (HCC - Free Report) , SunCoke Energy (SXC - Free Report) and Hallador Energy Company .
Industry: Coal
Link: https://www.zacks.com/commentary/2114331/3-coal-stocks-to-watch-from-a-challenging-industry
The Zacks Coal industry stocks staged a rebound in 2022, courtesy of global demand and surging natural gas prices. In 2023, the demand for coal will suffer due to lesser coal utilization in the United States to produce electricity, planned retirement of coal units and the utilization of more renewable sources for electricity generation. The ongoing energy transition, with utility operators steadily phasing out coal units, will adversely impact the coal industry. Then again, the persisting conflict between Russia and Ukraine is creating fresh demand from coal-importing countries. Hence, coal export from the United States is expected to improve in 2023 from the year-ago level.
Despite a drop in coal production, improving cost export volumes and low-cost coal production assets are likely to boost the prospects of Warrior Met Coal. Other coal stocks, SunCoke Energy and Hallador Energy Company, are expected to gain during this difficult phase of the coal industry.
About the Industry
The Zacks Coal industry comprises companies involved in the discovery and mining of coal. Coal is mined through the opencast or the underground method. The commodity is valued for its energy content and used worldwide to generate electricity and manufacture steel and cement. 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 in the United States contribute nearly 70% of the yearly production and 60% of the coal production from surface mining. Per EIA, the demand for coal will decline due to the usage of more renewable assets and a gradual shutdown of coal-powered generation units, hurting the prospects of the coal industry.
3 Trends Likely to Impact the Coal Industry
Despite Reliability Emission Policy to Hurt Coal Industry: The improvement in demand for coal is 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. Per EIA, coal-fired electricity generation would drop from 20% in 2022 to 16% in 2023 and remain the same in 2024. Unless utility operators invest heavily in pollution-control measures to reduce emissions from power plants, domestic coal usage will fall drastically.
Coal industry operators should brace themselves for challenges as several electric utilities have decided to become carbon neutral by 2050 and completely cut down coal usage. Despite the emission, coal stocks are still relevant as the commodity is a reliable source of energy and ensures 24x7 electricity production from the generation units.
U.S. Coal Production Drops: Per EIA projection, coal production in the United States is expected to drop in 2023 and 2024 after showcasing an improvement in production volumes in the previous two years. EIA projects U.S. coal production to decline by 6% to about 560 million short tons (MMst) in 2023 and a further 14% to 480 MMst in 2024 due to the expected reduction in coal usage in electricity production in the the United States. This would hurt coal operators as they fight a tough battle against other sources of energy.
Coal to Benefit From Rising Exports: Despite an expected drop in the coal production volumes, coal operators in the United States can benefit from the expected rise in coal export volumes. Coal demand is expected to improve due to its economical pricing compared with other energy sources. Higher demand from the Asian market and an expected improvement in steel production should drive U.S. export volumes.
Coal is still a viable energy option for many crucial industries across the globe. Per EIA, coal export volume may increase by 18.9% in 2023 to 100.8 MMst and by 2.6% more to 103.4 MMst in 2024. The World Steel Association forecasts a rebound in global steel volume production, rising 2.3% in 2023 to touch 1,822.3 Mt and up 1.7% in 2024 to touch 1,854 Mt.
Steel production requires a lot of high-quality coal and nearly 70% of global steel production depends on coal. With the continued recovery in steel production, coal exports are expected to pick up and improve in the long run.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Coal industry is an 9-stock group within the broader Zacks Oil and Energy sector. The industry currently carries a Zacks Industry Rank #246, which places it in the bottom 2% out of 251 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates lackluster 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 bottom 50% 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 losing confidence in this group’s earnings growth potential. Since January 2023, the industry’s earnings estimates for 2023 have gone down by 22.2%.
Before we present a few coal stocks that you may want to keep track of, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Underperforms S&P 500 & Sector
The Zacks Coal industry has underperformed 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 1.2% compared with the Zacks Oil-Energy sector’s growth of 3.5%. The Zacks S&P 500 composite has rallied 14.6% in the same time frame.
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 2.29X compared with the Zacks S&P 500 composite’s 13.3X and the sector’s 2.77X.
In the past five years, the industry has traded as high as 7.6X, as low as 2.01X and at the median of 4.8X.
3 Coal Industry Stocks to Keep a Close Watch On
Warrior Met Coal, Inc.: Brookwood, AL-based Warrior Met produces and exports metallurgical coal for the steel industry. The company will benefit from the end of the labor strike and resulting incremental production volume as eligible employees return to work. Warrior Met plans to invest $420-$440 million in 2023 to further strengthen its coal operation.
The Zacks Consensus Estimate for second-quarter 2023 earnings has moved up by 17.3% to $2.10 per share in the past 60 days. Current dividend yield of the company is 0.75%, on par with industry’s yield of 0.75%. The stock has gained 7.9% in the past three months against its industry’s decline of 13.2%.
Warrior Met Coal currently carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SunCoke Energy: Lisle, IL-based SunCoke Energy is a raw material processing and handling company serving steel and power customers, with principal businesses in cokemaking and logistics. With an annual 5.9 million tons of coke-making capacity, it is poised to benefit from rising met coal export and increasing demand for met coal from the steel industry. The company plans to invest $95 million in 2023 to expand its operations.
SunCoke Energy currently carries a Zacks Rank of 3. The Zacks Consensus Estimate for 2023 earnings has moved up by 1.3% in the past 60 days. The current dividend yield of the company is 4.12%. The stock has lost 11.6% in the past three months.
Hallador Energy Company: Terre Haute, IN-based Hallador Energy carries a Zacks Rank of 3. The company, through its subsidiaries, engages in the production of coal in Indiana for the electric utilities. Hallador Energy continues to acquire and develop new mines and explore opportunities in the coal space. The company plans to invest $69 million in 2023 to broaden and maintain its coal operations.
The Zacks Consensus Estimate for Hallador Energy 2023 and 2024 earnings suggests a year-over-year growth of 149.1% and 133.6%, respectively. The stock has lost 11.7% in the past three months.
Why Haven’t You Looked at Zacks' Top Stocks?
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.