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Top 3 Profitable Coal Stocks to Buy

Despite environmental concerns, the global coal industry is booming due to robust demand and a surge in investments in the sector. Hence, fundamentally sound coal stocks Hallador Energy (HNRG), SunCoke Energy (SXC), and China Shenhua Energy (CSUAY) might be solid buys. Keep reading...

While there is a growing emphasis on renewable and cleaner energy sources, coal continues to provide a significant portion of the world's energy, particularly in developing countries where alternative energy infrastructure is still evolving.

So, investors could consider quality coal stocks Hallador Energy Company (HNRG), SunCoke Energy, Inc. (SXC), and China Shenhua Energy Company Limited (CSUAY). These companies exhibit robust profit margins.

Global coal consumption reached a new all-time high in 2022 and is expected to remain near that record level this year. The International Energy Agency's (IEA) mid-year Coal Market Update reveals that coal consumption increased by 3.3% to 8.3 billion tonnes in 2022, setting a new record.

In 2023 and 2024, small declines in coal-fired power generation are likely to be offset by rises in industrial coal use. The largest consumers, including China, India, and Southeast Asian countries, are expected to drive three-quarters of global coal consumption this year.

Moreover, the global coal market's resilience and continued expansion indicate its continued relevance in the broader energy landscape. The global coal market is estimated to be worth $658.68 billion by 2027, expanding at a CAGR of 1.4%, as per Research and Markets report.

In addition, according to the IEA, global investment in coal production and supply is expected to increase by approximately 10% in 2023, reaching $150 billion. Robust coal demand and high prices during the 2022 energy crisis are contributing to this investment growth.

Considering these conducive trends, let's take a look at the fundamentals of the three best Coal stocks, starting with number 3.

Stock #3: Hallador Energy Company (HNRG)

HNRG engages in the production of steam coal for the electric power generation industry. The company owns the Oaktown Mine 1 and Oaktown Mine 2 underground mines in Oaktown; Freelandville Center Pit surface mine in Freelandville; and Prosperity Surface mine in Petersburg, Indiana.

HNRG’s trailing-12-month levered FCF margin of 18.11% is 172% higher than the industry average of 6.66%. Its trailing-12-month asset turnover ratio of 1.20x is 97% higher than the 0.61x industry average.

On August 2, 2023, HNRG secured a new $140 million credit agreement with PNC Bank as the administrative agent. This agreement extends through 2026 and involves converting $65 million of existing debt into a new term loan with a maturity date of March 31, 2026, along with a $75 million revolver with a maturity of July 31, 2026.

The amendment also raises the maximum annual capital expenditure limit to $100 million. HNRG's CEO, Brent Bilsland, appreciated the increased liquidity and flexibility the amendment provides, particularly following the Merom Power Plant acquisition in October 2022.

HNRG’s total revenue for the second quarter that ended June 30, 2023 increased 144.5% year-over-year to $161.19 million. Its income from operations came in at $22.24 million. The company’s net income amounted to $16.92 million and $0.47 per share compared to a net loss of $3.39 million and $0.11 per share in the same quarter last year.

Analysts expect HNRG’s revenue and EPS for fiscal year 2023 to increase 99.2% and 235.1% year-over-year to $721 million and $1.91, respectively. Moreover, the company surpassed the revenue and EPS estimates in three of the trailing four quarters, which is impressive.

The stock has gained 129.4% over the past year to close the last trading session at $14.89. It has returned 31.9% over the past month.

HNRG’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has an A grade for Growth and a B for Momentum and Sentiment. Out of 11 stocks in the A-rated Coal industry, it is ranked #3.

In addition to the POWR Ratings stated above, one can access HNRG’s Value, Stability, and Quality ratings here.

Stock #2: SunCoke Energy, Inc. (SXC)

SXC serves as an autonomous Coke producer in the Americas and Brazil, structured into three segments: Domestic Coke; Brazil Coke; and Logistics. It supplies both metallurgical and thermal coal, in addition to offering handling and mixing services to diverse industrial clients, such as steel, coke, electric utility, and coal-producing sectors.

SXC’s trailing-12-month levered FCF margin of 6.95% is 87.9% higher than the industry average of 3.70%. Its trailing-12-month asset turnover ratio of 1.24x is 71.3% higher than the 0.72x industry average.

On September 1, SXC paid a cash dividend of $0.10 per share of the company's common stock, representing a 25% increase over the regular quarterly cash dividend of $0.08 per share.

With a four-year average dividend yield of 3.68%, the company pays an annual dividend of $0.40, which translates to a yield of 4.06% on the prevailing price level. SXC has raised its dividend payout at a CAGR of 12.3% over the past three years.

For the second quarter that ended June 30, 2023, SXC’s sales and other operating revenue increased 6.5% year-over-year to $534.40 billion. Its operating income rose 8.7% from the year-ago quarter to $37.50 million. The company’s adjusted EBITDA grew 3.8% from the prior year’s quarter to $74 million.

In addition, net income rose 13.3% and 14.3% year-over-year to $20.40 million and $0.24 per share, respectively.

SXC’s revenue and EPS are expected to amount to $382.70 million and $0.19 in the fiscal third quarter that ended September 2023. The company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

Shares of SXC have gained 50% over the past year to close the last trading session at $9.86.

SXC’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.

SXC has a B grade for Sentiment, Momentum, and Value. It is ranked #2 in the same industry.

To access the additional SXC ratings for Growth, Stability, and Quality, click here.

Stock #1: China Shenhua Energy Company Limited (CSUAY)

Headquartered in Beijing, China, CSUAY is involved in coal and power production and sales, as well as railway, port, and shipping transportation, alongside coal-to-olefins ventures. The company operates through six segments: Coal; Power Generation; Railway; Port; Shipping; and Coal Chemical.

CSUAY’s trailing-12-month levered FCF margin of 14.61% is 119.5% higher than the industry average of 6.66%. Its trailing-12-month net income margin of 19.31% is 36.6% higher than the 14.13% industry average.

For the six months that ended June 30, 2023, CSUAY’s revenue from goods and services increased 2.3% year-over-year to RMB169.44 billion ($23.33 billion).

As of June 30, 2023, the company’s cash and cash equivalents stood at RMB150.31 billion ($20.69 billion), compared to RMB131.46 billion ($18.10 billion) as of December 31, 2022. Its current assets came at RMB240.96 billion ($33.17 billion), compared to RMB211.05 billion ($29.06 billion).

The company’s revenue for the fiscal third quarter that ended September 2023 is expected to amount to $11.55 billion.

The stock gained 11.3% year-to-date, closing the last trading session at $12.75.

CSUAY’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.

CSUAY has an A grade for Stability and a B for Momentum and Quality. It is ranked first in the same industry.

Click here to access additional CSUAY ratings for Value, Growth, and Sentiment.

What To Do Next?

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CSUAY shares were trading at $12.74 per share on Wednesday afternoon, down $0.01 (-0.11%). Year-to-date, CSUAY has gained 23.20%, versus a 14.70% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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