In the face of ambitious climate pledges from several countries worldwide, many are unable to break their dependence on coal, as consumption is set to rise. Given the optimism, it could be wise to add fundamentally strong coal stocks Peabody Energy Corporation (BTU), Alpha Metallurgical Resources, Inc. (AMR), and CONSOL Energy Inc. (CEIX) to your portfolio, trading at discounted valuations.
Over the past year, the coal sector gained traction due to geopolitical tensions and unprecedented economic conditions. The Russian-Ukraine war and the subsequent response from the United States and its allies have had a crippling impact on energy resources, boosting the demand for pivotal commodities globally.
The global coal market grew from $614.96 billion in 2022 to $621.89 billion in 2023 at a CAGR of 1.1%. Furthermore, the coal market is expected to grow to $658.68 billion in 2027 at a CAGR of 1.4%.
Even though some countries have rolled out climate strategies to decarbonize their economies over the coming decades, with gas shortages and a long road ahead to meet global demand for renewable energy, many continue to rely on coal for power and industry.
While coal use is expected to decrease in the long term, demand is set to remain robust in 2023, and consumption is set to hit an all-time high. Emerging and developing economies in Asia are set to increase coal use to help power their economic growth, even as they add more renewables, according to the International Energy Agency (IEA).
Furthermore, the market’s continued correction has led to many quality stocks trading at reasonable valuations. Given the fundamental strength, it could be wise to invest in BTU, AMR, and CEIX to gain from their explosive upside. Moreover, these stocks also pay dividends, which is ideal for investors in this volatile market environment.
Peabody Energy Corporation (BTU)
BTU is a producer of metallurgical and thermal coal. It markets and brokers coal from other coal producers, trades coal and freight-related contracts, and partnered in a joint venture with the intent of developing various sites. The company operates through Seaborne Thermal Mining; Seaborne Metallurgical Mining; Powder River Basin Mining; and Other U.S. Thermal Mining segments.
On April 27, on the back of its strong financials, the company declared a quarterly dividend on its common stock of $0.075 per share, payable to its shareholders on May 31, 2023. BTU’s four-year average yield is 5.71%, while its annual dividend translates to a 1.41% yield on current prices.
In terms of forward non-GAAP P/E, BTU is trading at 3.21x, 62.6% lower than the industry average of 8.59x. Its forward EV/Sales multiple of 0.50x is 71.5% lower than the industry average of 1.76x. In addition, the stock’s forward EV/EBIT ratio of 2.10x compares to the industry average of 7.85x.
BTU’s revenue for the fiscal first quarter ended March 31, 2023, increased 97.3% year-over-year to $1.36 billion. The company’s operating profit and attributable net income amounted to $404.50 million and $268.50 million, compared to an operating and net loss of $70.60 million and $119.50 million, respectively, in the prior-year quarter.
Also, its net income per share came in at $1.68 versus a loss per share of $0.88 in the same period last year. In addition, its adjusted EBITDA increased 19.3% from the year-ago value to $390.60 million.
Street expects BTU’s revenue to increase 3.7% year-over-year to $5.16 billion for the current year (ending December 2023), while its EPS is expected to be $6.63 in the same period. Moreover, the company surpassed the revenue estimates in three of the trailing four quarters.
Over the past year, the stock has lost 3.8% to close the last trading session at $21.29. However, analysts expect the stock to hit $30.75 in the near term, representing a 44.4% upside potential.
BTU’s POWR Ratings reflect solid prospects. It has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and Quality. Out of 11 stocks in the A-rated Coal industry, it is ranked #6. Click here to see the other ratings of BTU for Growth, Momentum, Stability, and Sentiment.
Alpha Metallurgical Resources, Inc. (AMR)
AMR is a mining company with operations across Virginia and West Virginia. It extracts, processes, and markets met and thermal coal from deep and surface mines for sale to steel and coke producers, industrial customers, and electric utilities. As of December 31, 2022, it operated twenty-four active mines and eight coal preparation and load-out facilities.
On May 3, AMR declared a quarterly dividend payment of $0.50 per share, reflecting an increase from the prior quarter's dividend of $0.44 per share, payable on July 5, 2023. The company’s annual dividend translates to a 1.36% yield, while its four-year average yield is 0.48%.
In terms of forward non-GAAP P/E, AMR is trading at 2.87x, 78.1% lower than the industry average of 13.10x. Its trailing-12-month EV/Sales and EV/EBIT multiples of 0.57x and 2.12x are 61.4% and 81% lower than the industry averages of 1.47x and 11.15x, respectively.
For the fiscal first quarter that ended March 31, 2023, AMR’s total costs and expenses decreased 3.6% year-over-year to $596.73 million. The company’s income from operations came in at $314.50 million, while its net income amounted to $270.77 million and $17.01 per share in the same period. Also, it reported an adjusted EBITDA of $354.42 million.
As of March 31, 2023, its total assets increased 1.6% from $2.31 billion for the period that ended December 31, 2022, to $2.35 billion.
Analysts expect AMR’s EPS and revenue for the second quarter (ending June 30, 2023) to amount to $14.20 and $883.45 million, respectively. AMR’s shares have gained marginally over the past nine months and year-to-date to close the last trading session at $146.55. The stock’s 12-month median price target of $210 indicates a 43.3% potential upside.
AMR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. Within the same industry, it is ranked #5. Click here to see the additional ratings for AMR (Growth, Momentum, Sentiment, and Stability).
CONSOL Energy Inc. (CEIX)
CEIX is a producer and exporter of high-Btu bituminous thermal coal and metallurgical coal. The company owns and operates longwall mining operations in the Northern Appalachian Basin. It operates through two segments: the Pennsylvania Mining Complex (PAMC); and CONSOL Marine Terminal.
On May 2, at the discretion of the board of directors, CEIX announced a dividend of $1.10 per share, representing approximately 17% of the free cash flow generated in the first quarter of 2023. The payment will amount to an aggregate of approximately $37.3 million, payable on May 23, 2023.
CEIX’s four-year average yield is 0.65%, while its annual dividend translates to a 7.57% yield on the prevailing prices.
In terms of forward non-GAAP P/E, CEIX is trading at 2.63x, 69.4% lower than the industry average of 8.59x. Its forward EV/EBITDA multiple of 1.81 is 62.4% lower than the industry average of 4.82. In addition, the stock’s forward EV/EBIT ratio of 2.29x compares to the industry average of 7.85x.
CEIX’s total revenue and other income increased 92.1% year-over-year to $688.61 million for the first quarter (ended March 31, 2023). The company’s net income and EPS amounted to $230.38 million and $6.55 compared to a net loss and loss per share of $4.45 million and $0.13, respectively, in the same period last year. Also, its adjusted EBITDA improved 104.6% from the prior-year quarter to $346.30 million.
The consensus revenue estimate of $591.10 million for the second quarter (ending June 30, 2023) represents an 8.4% increase year-over-year. The consensus EPS estimate of $4.70 for the current quarter indicates a 31.6% year-over-year growth. The company surpassed the consensus EPS and revenue estimates in each of the trailing four quarters, which is promising.
The stock has gained 4.8% over the past three months to close the last trading session at $58.10. Also, analysts expect the stock to hit $80 in the near term, representing a 37.7% upside potential.
CEIX’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. It is ranked first among 11 stocks in the same industry. To see the other ratings of CEIX for Growth, Momentum, Stability, and Sentiment, click here.
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BTU shares were trading at $21.22 per share on Wednesday afternoon, down $0.07 (-0.33%). Year-to-date, BTU has declined -19.42%, versus a 9.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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