Rapid economic recovery from the COVID-19 crisis has caused coal to rise again in prominence as a resource to meet the country’s energy needs. Currently, the amount of electricity generated from coal is set to post a record this year. According to the International Energy Agency (IEA), global power generation from coal is expected to surge 9% in 2021 to 10,350 terawatt-hours, which is an all-time high, while coal demand is predicted to hit record highs in 2022 despite the drive for cleaner energy. Moreover, the sky-high natural gas prices have given coal a cost-competitive advantage.
In addition Democratic Senator Joe Manchin from West Virginia has said no to the Biden administration’s proposed Build Back Better bill, which contains $555 billion spending to shift the country toward renewable energy sources. Manchin’s negative position is aligned with his state’s coal interests. Gregory Wetstone, President and Chief Executive of the American Council on Renewable Energy, said, “All of the prior conversations had been along the lines that he did not want to penalize fossil fuel.”
Coal prices are at $149 per ton, up 121.2% this year. Therefore, we think coal stocks with sound fundamentals, China Shenhua Energy Company Limited (CSUAY), SunCoke Energy, Inc. (SXC), and Hallador Energy Company (HNRG), might be ideal additions to one’s portfolio this winter.
China Shenhua Energy Company Limited (CSUAY)
CSUAY, which is based in Beijing, China, produces and sells coal and power and engages in the railway, port, shipping, and coal-to-olefins business in China and globally. The company operates through the broad segments of Coal; Port; Railway; Shipping; and Coal Chemical.
On December 15, the company announced the successful 168-hour trial and transfer to commercial operation of its Unit 1 of the Wharf, Coal Reserve & Power Generation Integration Project, at the Luoyuanwan Port in Fujian Province. Earlier, CSUAY also declared the successful completion of a trial and commercial operation commencement of Unit 2 of Shenhua Guohua Yongzhou Power Co., Ltd., the company’s subsidiary. These successful trials are expected to enhance the company’s operations and improve its revenues.
For its fiscal third quarter, ended September 30, CSUAY’s revenue increased 45.6% year-over-year to RMB88.97 billion ($13.95 billion). Its profit for the period attributable to equity holders of the company improved 21% from the prior-year quarter to RMB14.78 billion ($2.32 billion), while its EPS rose 21.2% from the same period last year to RMB0.744.
Analysts expect CSUAY’s revenue to increase 21.6% year-over-year to $12.48 billion in the current quarter (ending December 2021).
Over the past year, the stock has gained 19.5% in price to close yesterday’s trading session at $9.19. It has gained 23% year-to-date.
CSUAY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
CSUAY has an A grade for Momentum and a B grade for Value, Stability, and Quality. In the 11-stock, B-rated Coal industry, it is ranked #2.
To see the additional POWR Ratings for Growth and Sentiment, click here.
SunCoke Energy, Inc. (SXC)
SXC in Lisle, Ill., is an independent coke producer that operates in the United States and Brazil. The company offers metallurgical and thermal coal functions through the broad segments of Domestic Coke; Brazil Coke; and Logistics.
On November 1, SXC declared a $0.06 per share dividend on the company’s common stock, which was to be paid to shareholders on December 1. This reflects SXC’s solid cash balance and ability to pay back shareholders.
In September, the company reported restoring electrical power at its Convent Marine Terminal and that it was returning it to normal operating status. Resumption of activities at the location should improve the company’s operational capacity.
SXC’s sales and other operating revenue increased 21.3% year-over-year to $366.50 million in its fiscal third quarter, ended September 30. Its operating income rose 245% from the prior-year quarter to $41.40 million. Its net income and EPS attributable to SXC came in at $23 million and $0.27, respectively, up substantially from their negative year-ago values.
A $0.22 consensus EPS estimate for the current quarter (ending December 2021) indicates a 344.4% year-over-year increase. Likewise, the $472.20 million consensus revenue estimate for the current quarter reflects an improvement of 52.3% from the prior-year quarter. Furthermore, SXC has an impressive surprise earnings history; it has topped consensus EPS estimates in three of the trailing four quarters.
The stock has gained 41.2% in price over the past year and 49.7% year-to-date to close yesterday’s trading session at $6.51.
It is no surprise that SXC has an overall A rating, which translates to Strong Buy in our POWR Rating system.
SXC has a Growth and Momentum grade of A, and a Value, Sentiment, and Quality grade of B. It is ranked #1 in the Coal industry.
Click here to see the additional POWR Ratings for Stability for SXC.
Hallador Energy Company (HNRG)
HNRG and its subsidiary produce steam coal from the Illinois basin, primarily for the electric power generation industry. The Terre Haute, Ind.-based company owns two underground mines in Oaktown, Indiana, and engages in gas exploration activities.
HNRG expects coal prices to increase about $3 per ton in the fourth quarter and expects production cost pressures to dissipate over the next year, aiding the company’s growth in the coming months.
For its fiscal third quarter, ended September 30, HNRG’s net income increased 315.3% year-over-year to $7.99 million. Its total revenues climbed 22.3% from the prior-year quarter to $79.82 million. And its adjusted EBITDA rose 20.1% from the same period last year to $20.52 million.
The Street’s $0.11 EPS estimate for the current year (fiscal 2021) indicates a 155% year-over-year increase. And the Street’s $248.90 million revenue estimate for the current year reflects a 1.5% improvement from the prior year.
The stock has gained 103.7% in price over the past year to close yesterday’s trading session at $2.22. It has gained 51% year-to-date.
HNRG’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
HNRG has an A grade for Value and Momentum and a B grade for Sentiment and Quality. It is ranked #3 in the Coal industry.
Click here to see the additional POWR Ratings for HNRG (Growth and Stability).
CSUAY shares were trading at $9.25 per share on Tuesday afternoon, up $0.06 (+0.65%). Year-to-date, CSUAY has gained 38.79%, versus a 24.43% 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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