Coal generates large quantities of greenhouse gases when burnt, making it one of the most polluting substances used for energy generation. Michelle Manook, the Chief Executive of the World Coal Association (WCA), believes the industry is not doing enough to demonstrate how the adoption of cleaner technologies can reduce carbon emissions, which is making it harder to integrate coal into a decarbonized future.
In June, G7 country leaders pledged to transition away from coal, with the goal of completely phasing it out by 2040. The commitment includes Japan, the second-largest overseas coal power financier in the world. Recently, China, the world’s largest coal producer, intervened to tame surging coal prices as part of an effort to address power shortages. As a result, last Friday, China's thermal coal futures fell 13%, with the most-traded contract on Zhengzhou Commodity Exchange settling at 1,408.4 yuan ($220) per ton, representing a 30% decline from its record high on Tuesday and its largest weekly decline since May.
Given this backdrop, we think it could be wise to avoid fundamentally weak coal stocks of CNX Resources Corporation (CNX), Peabody Energy Corporation (BTU), Arch Resources, Inc. (ARCH), and Warrior Met Coal, Inc. (HCC).
CNX Resources Corporation (CNX)
CNX operates as an independent oil and natural gas company, acquiring, exploring, and producing natural gas properties, mainly in the Appalachian basin. The Canonsburg, Pa., company operates through the broad segments of Shale and Coalbed Methane.
On September 22, CNX announced the results of a tender offer by its subsidiary, CNX Midstream Partners LP, to purchase a part or all its 6.500% senior notes due 2026, with a $157.68 million total principal amount.
For its second fiscal quarter, ended June 30, CNX’s total revenue and other operating income decreased 185.5% year-over-year to a negative $127.21 million. Its net loss attributable to CNX shareholders increased 142.9% from the prior-year quarter to $354.06 million. And its loss per share worsened 106.4% from the same period last year to $1.61.
A $0.40 consensus EPS estimate for the current quarter (ending December 2021) indicates a 90.5% year-over-year increase. However, the $482.73 million consensus revenue estimate for the current quarter reflects a 23% decrease from the prior-year quarter. The stock has declined marginally intra-day to close yesterday’s trading session at $14.81.
CNX’s POWR Ratings reflect this bleak outlook. The stock has a D Stability and Sentiment grade. In the 11-stock Coal industry, it is ranked #8. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Click here to see the additional POWR Ratings for CNX (Growth, Value, Momentum, and Quality).
Peabody Energy Corporation (BTU)
BTU is in the coal mining business in several countries. The St. Louis, Mo., company mines, prepares, and sells thermal coal, and mines bituminous and subbituminous coal deposits and metallurgical coal. It sells its offerings to electricity generators, industrial facilities, and steel manufacturers.
On October 22, BTU offered to purchase its 8.500% senior secured notes due 2024 for cash up to $15.84 million. The tender offer is to satisfy the requirements of an indenture.
BTU’s revenues increased 15.4% year-over-year to $723.40 million in its fiscal second quarter, ended June 30. However, operating costs and expenses rose 9.9% from the prior-year quarter to $611.40 million. And for the six months ended June 30, its cash, cash equivalents, and restricted cash at the end of the period decreased 33.8% from the same period last year to $561.90 million.
Analysts expect its revenue to increase 16.8% year-over-year to $3.36 billion in the current year (fiscal 2021). BTU’s stock has declined 7.5% in price over the past month and 6.6% over the past five days to close yesterday’s trading session at $13.05.
BTU has an F grade for Stability, and a D grade for Sentiment in our POWR Ratings system. It is ranked #9 in the Coal industry. Click here to see the additional POWR Ratings for Growth, Value, Momentum, and Quality for BTU.
Arch Resources, Inc. (ARCH)
St. Louis, Mo.-based ARCH sells thermal and metallurgical coal mined from its surface and underground mines. It operates owned properties and long-term leased properties. The company supplies its products to utility, industry, and steel producers in various countries.
On September 9, ARCH announced that it had commenced production at its Leer South longwall mine in Barbour County, W.Va. However, full production is not expected to begin before 2022. Hence, it will be some time before the company realizes considerable gains from this project.
For its third fiscal quarter, ended September 30, ARCH’s revenues increased 55.5% year-over-year to $594.41 million. But for the nine months ended September 30, its cash provided by financing activities decreased 47.5% year-over-year to $38.62 million. Its cash used in investing activities rose 18.7% from the same period last year to $132.83 million.
The Street expects its revenue to increase 9.4% year-over-year to $391 million in the next quarter (ending March 2022). The stock has declined 1.3% in price over the past five days to close yesterday’s trading session at $91.61. It had declined 5.7% intra-day.
Under our POWR Ratings, ARCH has been accorded a D rating for Stability. It is ranked #10 in the Coal industry.
Click here to see the additional POWR Ratings for Growth, Value, Momentum, Sentiment, and Quality for ARCH.
Warrior Met Coal, Inc. (HCC)
HCC exports non-thermal metallurgical coal used in the steel industry and markets natural gas as a by-product. The company supplies its metallurgical coal to producers on different continents. HCC is headquartered in Brookwood, Ala.
The company reported a strike that has been organized by the United Mine Workers of America (UMWA) since April 1. Protesters have been picketing the company’s entrances. On October 25, HCC reported that the strike had transitioned into acts of violence, damaging its vehicles and properties. The strike, if further escalated, could hinder the company’s production.
Although HCC’s total revenue increased 38.9% year-over-year to $227.44 million, its total costs and expenses also rose 36.2% from the same period last year to $230.27 million in its second fiscal quarter, ended June 30. Its net income and EPS were negative $4.68 million and negative $0.09, respectively.
The Street’s $228.58 million revenue estimate for the current quarter (ending December 2021) reflects a 7.7% year-over-year increase. HCC’s stock price has declined 4.9% over the last five days and 5.1% intra-day to close yesterday’s trading session at $24.43.
HCC’s POWR Ratings reflect its poor prospects. The stock has a Stability and Sentiment grade of D. It is ranked #7 in the Coal industry.
In addition to the POWR Rating grades we’ve stated above, one can see HCC ratings for Growth, Value, Momentum, and Quality here.
CNX shares rose $0.92 (+6.21%) in premarket trading Thursday. Year-to-date, CNX has gained 40.00%, versus a 22.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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