Based in Terre Haute, Indiana, Hallador Energy Company (HNRG) produces steam coal in Indiana for the electric power generation industry. The company owns the Oaktown Mine 1 and Oaktown Mine 2 underground mines in Oaktown, Ind., and Ace in the Hole mine near Clay City. It is also involved in gas exploration activities in Indiana.
The resumption of economic activities and consequent increase in demand for energy caused coal to witness heightened demand and increased prices. Because energy consumption is expected to continue rising, coal prices could keep soaring. In addition, the disruption in gas supply due to the import bans on the largest exporter, Russia, has this year been driving a rise in the demand for coal. According to the International Energy Agency (IEA), worldwide coal demand could climb to an all-time high in 2022, breaking the previous high achieved in 2013. Coal demand could rise to an all-time high of 8,031 MT in 2024.
While HNRG stock has gained 70% in price year-to-date and 114.9% over the past year thanks to the booming energy industry, it does not look well-positioned to deliver further upside considering its weak financials and low profitability.
Here is what could influence HNRG’s performance in the upcoming months:
Disappointing Financials
HNRG’s total revenue for the fiscal year ended Dec. 31, 2021, increased 1.4% year-over-year to $247.66 million. The company’s net loss narrowed 39.6% year-over-year to $3.75 million. Its operating cash flow declined 8.7% year-over-year to $47.97 million. Also, its adjusted EBITDA declined 6% year-over-year to $50.28 million. In addition, its average price per ton declined 2.5% year-over-year to $39.51.
Favorable Analyst Estimates
Analysts expect HNRG’s revenues to grow 13.4% in its fiscal year 2022 and 11.1% in fiscal 2023. Its earnings for fiscal 2022 and 2023 are expected to increase 183.3% and 810%, respectively, year-over-year, respectively.
Discounted Valuation
In terms of forward EV/S, HNRG’s 0.89x is lower than the 2.13x industry average. Also, its forward EV/EBITDA and P/S of 4.99x and 0.46x, respectively, are 29.2% and 69.3% lower than the 7.04x and 1.49x industry averages.
Low Profitability
In terms of trailing-12-month gross profit margin, HNRG’s 19.71% is 51.2% lower than the 40.40% industry average. And its trailing-12-month ROCE, ROC, and ROA are negative, compared to the 8.84%, 4.65%, and 2.94% industry averages.
POWR Ratings Reflect Uncertainty
HNRG has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. HNRG has a C grade for Quality, which consistent with its 14.95% trailing-12-month EBITDA margin, which is 37.9% lower than the 24.09% industry average.
Among the 11 stocks in the Coal industry, HNRG is ranked #8.
Beyond what I have stated above, view HNRG’s ratings for Growth, Value, Momentum, Stability, and Sentiment here.
Bottom Line
Coal demand is expected to remain strong this year due to rising energy demand worldwide. Despite gaining 70% in price this year, HNRG’s near-term prospects look uncertain due to its weak financials and lower-than-industry profitability. Thus, we think it could be wise to wait for a better entry point in the stock.
How Does Hallador Energy Company (HNRG) Stack Up Against its Peers?
HNRG has an overall POWR Rating of C, which equates to a Neutral rating. Therefore, one might want to consider investing in other Coal stocks with an A (Strong Buy) or B (Buy) rating, such as Yanzhou Coal Mining Company Limited (YZCAY), SunCoke Energy, Inc. (SXC), and Peabody Energy Corporation (BTU).
HNRG shares were trading at $4.26 per share on Friday morning, up $0.08 (+1.91%). Year-to-date, HNRG has gained 73.17%, versus a -8.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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