SunCoke Energy, Inc. (SXC) operates as an independent coke producer in the Americas and Brazil. The company operates through its three segments: Domestic Coke; Brazil Coke; and Logistics. On the other hand, Arch Resources, Inc. (ARCH) produces and sells thermal and metallurgical coal from surface and underground mines. It currently operates seven active mines.
Energy prices have been surging amid the Russia-Ukraine war and the lingering supply crunch. According to the World Bank, coal prices are projected to surge by 81% in 2022. Moreover, the prices are expected to remain high, boosting margins for coal producers.
Due to its varied uses, the demand for coal is expected to remain robust. According to Technavio, the coal mining market is expected to grow at a CAGR of 2.2% until 2025. Both SXC and ARCH are well-positioned to benefit from the industry tailwinds.
SXC has lost marginally over the past year, while ARCH has gained 175.9%. Moreover, SXC has lost 14.4% over the past month, while ARCH has declined 7.1%.
Which stock is a better buy now? Let’s find out.
On May 2, 2022, SXC declared its highly optimistic 2022 outlook. The company management expects its total domestic coke production to hit 4.10 million tons, and its cash from operations might go up to $205 million. Given the strong demand, Mike Rippey, SXC’s President and CEO, is hopeful of solid year-end growth.
On the other hand, on May 25, 2022, ARCH closed its previously announced privately negotiated exchanges of $125.20 million principal amount of its 5.25% Convertible Senior Notes due 2025, for aggregate consideration comprising $130.10 million in cash and approximately 2.60 million shares of ARCH’s common stock.
These transactions are expected to foster the company’s existing capital structure and improve its balance sheet.
Recent Financial Results
SXC’s revenues increased 22.2% year-over-year to $439.80 million for the first quarter ended March 31, 2022. Its domestic coke revenues came in at $411.60 million, up 22.8% year-over-year. Also, its total adjusted EBITDA came in at $83.80 million, up 18.7% year-over-year, while its EPS increased 75% year-over-year to $0.35.
ARCH’s revenues increased 142.8% year-over-year to $867.94 million for the first quarter ended March 31, 2022. Its net income came in at $271.87 million, compared to a loss of $6.04 million in the previous period. Moreover, its EPS came in at $12.89, compared to a loss per share of $0.40 in the prior-year period.
Past and Expected Financial Performance
SXC’s revenue grew at a marginal CAGR over the past three years, while its EPS grew at a CAGR of 16.9%. Analysts expect SXC’s revenue to increase 21.5% year-over-year to $1.77 billion in 2022. Its EPS is estimated to increase 94.2% year-over-year to $1.01 in 2022. Moreover, its EPS is estimated to grow 8% per annum for the next five years.
On the other hand, ARCH’s revenue grew at a CAGR of 3.3% over the past three years, while its EPS grew at a CAGR of 25.4%. Analysts expect the company’s revenue to increase 80% year-over-year to $3.97 billion in 2022. Its EPS is expected to increase 250.7% from the year-ago value to $71.15 in 2022.
SXC’s 23.50% gross profit margin is lower than ARCH’s 35.04%. Its net income margin of 3.67% is also significantly lower than ARCH’s 22.93%. SXC’s EBIT and EBITDA margins of 9.86% and 18.76% are lower than ARCH’s 25.53% and 31.03%, respectively. Furthermore, SXC’s ROTC and ROE of 8.06% and 11.39% compare with ARCH’s 40.59% and 102.10%, respectively.
Thus, ARCH is more profitable here.
In terms of forward EV/S, SXC is currently trading at 0.66x, lower than ARCH’s 0.68x. SXC’s trailing-12-month P/S of 0.38x is 57.3% lower than ARCH’s 0.89x. Furthermore, SXC’s trailing-12-month P/CF of 3.06x compare with ARCH’s 5.38x.
Thus, SXC is a relatively affordable stock here.
SXC has an overall rating of A, equating to Strong Buy in our proprietary POWR Ratings system. On the other hand, ARCH has an overall rating of B, which translates to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Both SXC and ARCH have a B grade for Value, consistent with their lower-than-industry valuation multiples. SXC’s forward P/S of 0.33x is 72.9% lower than the industry average of 1.22x. On the other hand, ARCH’s forward P/S of 0.72x is 50.9% lower than the industry average of 1.46x.
Of the 11 stocks in the A-rated Coal industry, SXC is ranked first, while ARCH is ranked #6.
The rising coal prices and overwhelming demand should bode well for coal producers SXC and ARCH. However, SXC’s lower valuation makes it a better buy here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Coal industry here.
SXC shares were trading at $7.07 per share on Tuesday afternoon, up $0.06 (+0.86%). Year-to-date, SXC has gained 8.97%, versus a -19.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.SunCoke Energy Vs. Arch Coal: Which Coal Stock is a Better Buy? appeared first on StockNews.com