Analyzing 3 Coal Stocks for 2024 Gain Potential

Coal’s status as the primary source of human-produced carbon dioxide emissions underscores the urgency of reducing its utilization to meet international climate objectives. However, it remains indispensable in electricity generation, steelmaking, and cement production, maintaining a pivotal role in the global economy.

In this context, investing in Hallador Energy Company (HNRG), which capitalizes on the industry's prospects, appears prudent. However, holding onto Peabody Energy Corporation (BTU) and Arch Resources, Inc. (ARCH) for the interim could be wise due to their current moderate fundamentals.

Before delving into the featured stocks, let's examine the dynamics of the Coal industry.

Last year, global coal-based electricity generation reached unprecedented levels, alongside a landmark milestone of thermal coal exports exceeding 1 billion metric tons. Despite extensive endeavors to reduce reliance on fossil fuels, the expansion of coal's role in power infrastructure persists.

Coal-fired electricity generation surged to a record high of 8,295 terawatt hours (TWh) through October 2023, up by 1% from the same period in 2022, according to environmental think tank Ember. Meanwhile, total thermal coal exports for the year surpassed 1.004 billion metric tons, indicating a 6.6% increase from 2022.

Moreover, the rising demand for steel, heavily reliant on metallurgical coal, presents significant opportunities for the coal industry. Increased demand for metallurgical coal should fuel its usage, boosting demand and potentially driving prices higher, thereby enhancing profitability and market growth.

Infrastructure investments and the adoption of advanced technologies such as 3D Mine visualizers are expected to propel the expansion of the metallurgical coal market further. These trends contribute to a positive outlook and growth opportunities for the coal industry.

As per a Research and Markets report, the metallurgical coal market is projected to increase from $14.7 billion in 2023 to $15.18 billion in 2024, reflecting a CAGR of 3.2%. The forecast indicates steady growth and sustained market expansion within the coal industry. In light of these trends, let’s look at the fundamentals of the three Coal stocks.

Stock to Buy:

Hallador Energy Company (HNRG)

HNRG produces steam coal for the electric power generation sector and also engages in gas exploration. The company's assets include Oaktown Mine 1 and Oaktown Mine 2 underground operations in Oaktown, along with the Freelandville Center Pit surface mine in Freelandville, and the Prosperity Surface mine in Petersburg, Indiana.

On August 2, 2023, HNRG secured a new $140 million credit agreement with PNC Bank as the administrative agent, extending it through 2026. The amendment, raising the annual capital expenditure limit to $100 million, could boost liquidity and enhance flexibility for future power sales, enabling HNRG to lock in future profits.

For the fiscal 2023 third quarter that ended September 30, 2023, HNRG’s total revenue increased 94.8% year-over-year to $165.77 million. Its income from operations grew 341.2% from the year-ago value to $23.80 million.

Moreover, the company’s net income and net income per share rose 897.2% and 780% from the prior year’s period to $16.08 million and $0.44, respectively.

Analysts expect HNRG’s revenue to increase 107.8% year-over-year to $752.10 million for the fiscal year that ended December 2023. The company’s EPS for the same year is estimated to rise 215.8% from the prior year to $1.80. Shares of HNRG gained 2.1% intraday to close the last trading session at $7.47.

HNRG’s sound outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

HNRG has an A grade for Value and Momentum. It is ranked #6 out of 13 stocks within the A-rated Coal industry.

In addition to the POWR Ratings I’ve highlighted, you can see HNRG’s Growth, Stability, Sentiment, and Quality ratings here.

Stocks to Hold:

Peabody Energy Corporation (BTU)

BTU engages in mining, preparing, and selling thermal coal, mainly to electric utilities, extracting bituminous and sub-bituminous coal, and mining metallurgical coal. Its operations include Seaborne Thermal Mining; Seaborne Metallurgical Mining; Powder River Basin Mining; and Other U.S. Thermal Mining segments.

On January 18, 2024, BTU disclosed the finalization of a new $320 million senior secured revolving credit facility. This could bolster the company's financial resilience, particularly during the investment phase at the Centurion Mine, aligning with its strategy to pivot BTU's long-term production and revenue focus toward high-quality Australian metallurgical coal.

On the other hand, for the fiscal 2023 fourth quarter that ended December 31, 2023, BTU’s revenue decreased 24.1% year-over-year to $1.24 billion. Its net income and adjusted EBITDA declined 69.2% and 31% from the prior year’s period to $198.70 million and $345.10 million, respectively.

However, as of December 31, 2023, the company’s total assets amounted to $5.96 billion, up from $5.61 billion as of December 31, 2022.

The consensus revenue estimate of $4.48 billion for the fiscal year ending December 2024 indicates a 9.5% year-over-year decline. Likewise, the consensus EPS estimate of $4.25 for the current year reflects an 8% year-over-year decrease.

The stock has gained 12.6% over the past six months. However, it has plunged 16.6% over the past year to close the last trading session at $24.63.

BTU’s fundamentals are apparent in its POWR Ratings. The stock has an overall rating of C, which equates to a Neutral in our proprietary rating system.

BTU has an A grade for Momentum and a B for Value. However, it also has a D grade for Growth and Stability.

It is ranked #10 out of 13 stocks within the Coal industry. Click here to access additional BTU ratings for Quality and Sentiment.

Arch Resources, Inc. (ARCH)

ARCH is both a coal and metallurgical coal producer, selling most of its coal to steel mills, power plants, and industrial facilities. Its Metallurgical (MET) segment encompasses metallurgical operations in West Virginia, while the Thermal segment includes thermal operations in Wyoming and Colorado.

On January 17, 2024, ARCH proclaimed that the Leer mine attained Level A verification for all protocols within the Towards Sustainable Mining (TSM) initiative. The achievement bolsters ARCH's reputation, attracting environmentally-conscious investors and stakeholders while also demonstrating its commitment to responsible resource extraction and securing future partnerships and contracts with sustainability-focused entities.

However, for the fiscal 2023 fourth quarter that ended December 31, 2023, ARCH’s revenues decreased 9.9% year-over-year to $774.02 million. Additionally, the company’s net income and adjusted EBITDA declined 75.6% and 29.8% from the prior year’s period to $114.89 million and $180.02 million, respectively.

Contrarily, as of December 31, 2023, the company’s total current assets stood at $917.77 million, compared to $823.85 million as of December 31, 2022.

Analysts expect ARCH’s revenue to decrease 20.4% year-over-year to $2.51 billion for the fiscal year ending December 2024. The company’s EPS for the ongoing year is expected to decline 6.8% from the previous year to $23.25.

ARCH’s shares have plunged 2.3% over the past five days. However, it has gained 29.6% over the past six months, closing the last trading session at $166.67.

ARCH’s prospects are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system.

ARCH has an A grade for Momentum and a C for Quality. Moreover, the stock has an F grade for Growth. It is ranked #9 out of 13 stocks within the same industry.

Click here to access the additional ARCH ratings (Value, Sentiment, and Stability).

What To Do Next?

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BTU shares were trading at $24.50 per share on Friday morning, down $0.13 (-0.53%). Year-to-date, BTU has gained 0.74%, versus a 5.60% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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