Amid rising environmental concerns over carbon emissions, the coal industry has witnessed a decline in its use for electricity generation. However, its availability and low cost compared to other electricity generation technologies continues to drive its growth.
Against this backdrop, investors could look to add fundamentally strong coal stocks China Shenhua Energy Company Limited (CSUAY), SunCoke Energy, Inc. (SXC), and Hallador Energy Company (HNRG) this summer.
A higher solar, wind, and nuclear generating capacity is anticipated to increase electricity generation from these sources this summer. With a greater focus on renewable energy, there is a reduced forecast of generation from coal-fired power plants.
However, demand from overseas markets helps support U.S. coal production by providing an outlet for exports. The coal market is expected to grow to $658.68 billion in 2027 at a CAGR of 1.4%.
Moreover, robust coal demand and the 2022 energy crisis pushing up prices are feeding into higher coal investments this year. According to the International Energy Agency (IEA), investment in global coal production and supply in 2023 is expected to rise to $150 billion, up about 10% from the $135 billion spent in 2022.
Given these factors, investors could keep a watch on the featured stocks. Let’s take a closer look at their fundamentals.
China Shenhua Energy Company Limited (CSUAY)
Based in Beijing, China, CSUAY engages in the production and sale of coal and power; railway, port, and shipping transportation; and coal-to-olefins businesses internationally. It operates through six segments: Coal; Power Generation; Railway; Port; Shipping; and Coal Chemical.
In terms of the forward EV/Sales, CSUAY’s 1.47x is 22.4% lower than the 1.90x industry average. Likewise, its 4.35x forward EV/EBITDA is 15.1% lower than the industry average of 5.12x. Furthermore, the stock’s 5.24x forward EV/EBIT is 36.7% lower than the industry average of 8.28x.
CSUAY’s revenue for the fiscal first quarter (ended March 31, 2023) increased 3.7% year-over-year to RMB87.04 billion ($12.20 billion). The company’s profit for the period increased marginally year-over-year to RMB23.59 billion ($3.31 billion). In addition, its EPS came in at RMB1.04, representing a 4.3% increase over the prior-year quarter.
CSUAY’s revenue for the fiscal year 2024 is expected to increase marginally year-over-year to $48.60 billion. Over the past six months, the stock has gained 15.6% to close the last trading session at $13.22.
CSUAY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 out of 11 stocks in the A-rated Coal industry. In addition, it has a B grade for Stability and Quality.
Click here to see the additional ratings of CSUAY for Growth, Value, Momentum, and Sentiment.
SunCoke Energy, Inc. (SXC)
SXC operates as an independent producer of coke in the Americas and Brazil. The company operates through three segments: Domestic Coke; Brazil Coke; and Logistics.
In terms of forward non-GAAP P/E, SXC’s 9.53x is 27.8% lower than the 13.20x industry average. Its 0.66x forward EV/Sales is 56.4% lower than the industry average of 1.51x. Likewise, its 4.26x forward EV/EBITDA is 42.6% lower than the 7.42x industry average.
SXC’s revenues for the first quarter that ended March 31, 2023, increased 10.9% year-year-over-year to $487.8 million. Its total assets came in at $1.67 billion, compared to $1.65 billion for the quarter that ended December 31, 2022. Additionally, its EPS came in at $0.19.
SXC’s EPS for the quarter ending December 31, 2023, is expected to increase 42.9% year-over-year to $0.20. It has a commendable earnings surprise history, surpassing its consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 11.1% to close the last trading session at $7.43.
SXC’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked #3 in the same industry. It has a B grade for Value and Sentiment.
In total, we rate SXC on eight different levels. Beyond what we stated above, we have also given SXC grades for Growth, Momentum, Stability, and Quality. Click here to access all the ratings.
Hallador Energy Company (HNRG)
HNRG engages in the production of steam coal in the State of Indiana 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 the Prosperity Surface mine in Petersburg, Indiana.
In terms of forward non-GAAP P/E, HNRG’s 5.91x is 33.3% lower than the 8.85x industry average. Its 0.56x forward EV/Sales is 70.3% lower than the industry average of 1.90x. Likewise, its 3.39x forward EV/EBITDA is 33.9% lower than the 5.12x industry average.
For the fiscal first quarter that ended March 31, 2023, HNRG’s net income came in at $22.05 million, compared to a net loss of $10.13 million for the prior-year quarter. The company’s total revenues increased 219.7% year-over-year to $188.33 million. Its adjusted EBITDA increased considerably year-over-year to $34.02 million.
Analysts expect HNRG’s revenue for the quarter ending December 31, 2023, to increase 1.6% year-over-year to $154.50 million. Over the past year, the stock has gained 36.7% to close the last trading session at $8.09.
HNRG’s strong outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. It is ranked #4 in the Coal industry. It has an A grade for Growth and a B for Value and Sentiment.
We have also given HNRG grades for Momentum, Stability, and Quality. Get all HNRG ratings here.
What To Do Next?
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CSUAY shares were trading at $13.38 per share on Monday morning, up $0.16 (+1.19%). Year-to-date, CSUAY has gained 16.80%, versus a 13.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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