Several nations have embarked on enduring climate strategies, intending to eliminate coal over the next few decades. Yet, owing to gas scarcity and the gradual growth of renewable energy capabilities, coal persists as a vital energy reservoir for power generation and industrial requisites in various areas.
Given the enduring reliance on coal, it could be wise to invest in fundamentally sound coal stocks SunCoke Energy, Inc. (SXC), CONSOL Energy Inc. (CEIX) and China Shenhua Energy Company Limited (CSUAY) for potential gains this December. Let’s understand this in more detail.
Although coal has persisted as a reliable electricity source, it stands as the primary emitter of carbon dioxide. Hence, the continuous endeavors by major global powers to substitute coal with renewable energy sources are anticipated to result in a gradual, prolonged decline in coal consumption over an extended timeframe.
However, the transition is viewed as exceptionally sluggish. Despite the resounding climate commitments from numerous major global players, breaking their coal dependency remains a formidable challenge, and consumption is poised to reach an unprecedented peak once more.
During the first half of 2023, global coal consumption surged by 1.5%, reaching 4,665 gigatons. This uptick is credited to a 1% escalation in electricity production and a 2% upswing in other applications.
The International Energy Agency (IEA) reports a projected 10% increase in global investment in coal production and supply in 2023, surpassing the $135 billion spent in 2022. Nearly 90% of this investment is anticipated in the Asia Pacific region, particularly in China and India, reflecting their ambitions to enhance production and establish new coal mines.
Looking forward, the IEA also foresees sustained high global demand for coal in 2024, projecting stability at approximately 8.38 Gt. This level has not been witnessed since before 2022.
According to a Research and Markets report, the global coal market grew from $614.96 billion in 2022 to $621.89 billion in 2023, demonstrating a CAGR of 1.1%. Forecasts suggest the coal market is set to reach $658.68 billion by 2027, with a projected CAGR of 1.4%.
In light of these encouraging trends, let’s look at the fundamentals of the three leading Coal stocks, beginning with number 3.
Stock#3: SunCoke Energy, Inc. (SXC)
SXC is an autonomous Coke producer. It delivers metallurgical and thermal coal, extending its expertise to furnish adept handling and mixing services to a diverse clientele. The company operates through three segments: Domestic Coke; Brazil Coke; and Logistics.
On April 24, SXC solidified a significant agreement, opting for a 12-year extension of its current contract. In this commitment, SXC pledges an annual provision of 1.22 million tons of metallurgical coke to Cleveland-Cliffs, sourced from its advanced coke-making facility in East Chicago, Indiana.
The extension strategically positions Indiana Harbor for long-term success. Furthermore, SXC stands to gain substantial benefits from this extended collaboration, fostering stability and growth in its operations and market presence.
In terms of forward non-GAAP P/E, SXC is trading at 14.55x, 6.6% lower than the industry average of 15.58x. In addition, the stock’s forward EV/Sales and forward EV/EBITDA of 0.61x and 4.51x compare with the industry averages of 1.56x and 8.20x, respectively.
For the third quarter that ended September 30, 2023, SXC’s revenues marginally increased year-over-year to $520.40 million. As of September 30, 2023, the company’s cash and cash equivalents amounted to $125.90 million, compared to $90 million as of December 31, 2022.
Additionally, its current assets came in at $421.30 million, up from $374 million as of December 31, 2022.
The company’s EPS is expected to grow 8% annually over the next five years. Shares of SXC have gained 15.9% over the past month and 37.9% over the past six months to close the last trading session at $9.46.
SXC’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SXC has a B grade for Value and Momentum. It has ranked #3 out of 11 stocks within the A-rated Coal industry.
In addition to the POWR Ratings I’ve highlighted, you can see SXC’s ratings for Growth, Stability, Quality, and Sentiment here.
Stock#2: CONSOL Energy Inc. (CEIX)
CEIX is a producer and exporter of bituminous coal. The Pennsylvania Mining Complex segment involves mining, preparing, and marketing bituminous coal. Its CONSOL Marine Terminal segment offers coal export terminal services through the Port of Baltimore.
In terms of forward non-GAAP P/E, CEIX is trading at 5.63x, 43.2% lower than the industry average of 9.91x. Its forward EV/EBITDA of 3.29x is 40% lower than the 5.48x industry average. Moreover, the stock’s forward EV/Sales of 1.37x compare with the industry average of 2.04x.
For the nine months that ended September 30, 2023, CEIX’s total revenue and other income increased 31% year-over-year to $1.92 billion. Its net income and EPS grew 82.1% and 92.1% from the prior year’s period to $498.83 million and $14.75, respectively.
Also, the company’s cash inflow from operating activities rose 27.8% from the prior year’s period to $638.82 million.
Analysts expect CEIX’s revenue to grow 20.5% year-over-year to $2.53 billion for the fiscal year ending December 2023. Similarly, the company’s EPS for the current year is estimated to come in at $20.09, indicating a 66.3% year-over-year improvement. Moreover, CEIX surpassed the consensus revenue and EPS estimates in three of four trailing quarters.
The stock has gained 18.8% over the past month and 104.5% over the past six months, closing the last trading session at $113.09.
CEIX’s sound prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
CEIX has an A grade for Quality and a B for Growth, Momentum, and Value. It is ranked #2 out of 11 stocks within the same industry.
Click here to access the additional CEIX ratings (Stability and Sentiment).
Stock#1: China Shenhua Energy Company Limited (CSUAY)
CSUAY, headquartered in Beijing, China, is involved in manufacturing and selling coal and power, as well as railway, port, and sea transportation and coal-to-olefins enterprises. It operates through six segments: Coal; Power Generation; Railway; Port; Shipping; and Coal Chemical.
In terms of forward EV/Sales, CSUAY is trading at 1.67x, 17.7% lower than the industry average of 2.03x. Furthermore, the stock’s forward EV/EBITDA and forward Price/Sales of 5.07x and 1.33x compare with the industry averages of 5.46x and 1.41x, respectively.
During the nine months ended September 30, 2023, CSUAY’s revenue from goods and services marginally increased year-over-year to RMB 252.47 billion ($35.65 billion). Its profit for the period stood at RMB 61.09 billion ($8.63 billion), while EPS registered at RMB 2.64.
As of September 30, 2023, the company’s total non-current assets amounted to RMB 427.10 billion ($60.31 billion), up from RMB 414.27 billion ($58.49 billion) as of December 31, 2022.
The consensus revenue estimate of $47.97 billion for the fiscal year ending December 2024 reflects a marginal year-over-year improvement. CSUAY has gained 5.2% over the past month, closing the last trading session at $12.84.
CSUAY’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
CSUAY has an A grade for Stability and a B for Momentum and Quality. It has topped the 11-stock Coal industry.
Click here to access additional CSUAY ratings for Growth, Value, and Sentiment.
What To Do Next?
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CSUAY shares were trading at $13.13 per share on Monday afternoon, up $0.29 (+2.22%). Year-to-date, CSUAY has gained 26.97%, versus a 20.71% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
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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