Despite the intensifying focus on climate-friendly energy alternatives, coal's growing requirements reaffirm its projected growth due to its low cost and convenience for transportation and storage.
Given this backdrop, quality coal stocks Yankuang Energy Group Company Limited (YZCAY), SunCoke Energy, Inc. (SXC), and Hallador Energy Company (HNRG) could be wise portfolio additions in July.
Before we look into the specifics of the stocks mentioned above, let's first explore the influences currently shaping the coal industry.
Coal has stood the test of time as a steadfast and significant resource for electricity generation. However, it is important to note that it is also the predominant single contributor to carbon dioxide emissions.
Hence, the continuous endeavors by leading global powers to substitute coal with renewable energy sources will likely result in a long-term reduction in coal consumption. However, the transition is believed to be very slow, and experts believe an acceleration is mandatory to address the climate chaos.
In addition, as per the International Energy Agency, investment in global coal production and supply in 2023 is expected to rise about 10% from the $135 billion spent in 2022. Nearly 90% of this investment will likely be in the Asia Pacific region, notably in China and India, as both countries have looked to expand production and develop new coal mines.
Moreover, coal is a cheap and convenient source of power used by developing countries to modernize their economies. In 2022, China and India, together, were responsible for two-thirds of the world’s coal usage.
Furthermore, as the two most populous nations globally, the imminent necessity to satisfy swiftly expanding power requirements is predicted to bolster the industry in the immediate future and beyond persistently. The global coal market is expected to grow to $658.68 billion in 2027 at a CAGR of 1.4%.
Given this backdrop, fundamentally strong coal stocks YZCAY, SXC, and HNRG could be wise buys this July.
Yankuang Energy Group Company Limited (YZCAY)
Based in Zoucheng, the People’s Republic of China, YZCAY engages in the mining, preparation, and sale of coal worldwide.
YZCAY pays an annual dividend of $4.34, which translates to a dividend yield of 17.90% on the current share prices. Its four-year average yield is 14.92%. The company’s dividend payouts have grown at a CAGR of 74.4% over the past three years and 42% over the past five years.
YZCAY’s forward EV/Sales of 1.56x is 19.2% lower than the 1.93x industry average. Its 4.32x forward EV/EBIT is 49% lower than the 8.47x industry average. Likewise, its forward Price/Sales multiple of 0.65 is 49% lower than the industry average of 1.28.
YZCAY’s trailing-12-month levered FCF margin of 14.90% is 152.2% higher than the 5.91% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 33.71%, 17.79%, and 9.85% are 41.8%, 58.7%, and 11.8% higher than the industry averages of 23.77%, 11.21%, and 8.81%, respectively.
For the fiscal first quarter that ended March 2023, YZCAY’s total operating revenue stood at RMB44.42 billion ($6.13 billion), up 7.8% year-over-year. Its net profit stood at RMB6.94 billion ($957.56 million). Its earnings per share stood at RMB1.15 for the same quarter.
YZCAY’s total current assets, as of March 31, 2023, stood at RMB96.14 billion ($13.26 billion), compared to RMB88.74 billion ($12.24 billion) as of December 31, 2022.
For the year ending December 2023, its revenue is expected to come in at $18.47 billion. The consensus revenue estimate of $18.79 billion for the year ending December 2024 represents a 1.7% increase year-over-year.
The stock declined marginally intraday to close its last trading session at $24.04.
YZCAY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
YZCAY has a B grade for Value and Stability. Within the A-rated 10-stock Coal industry, it is ranked #5.
Click here for the YZCAY’s POWR Ratings for Growth, Momentum, Quality, and Sentiment.
SunCoke Energy, Inc. (SXC)
SXC operates as an independent producer of Coke in the Americas and Brazil. The company operates through three segments: Domestic Coke; Brazil Coke; and Logistics.
On June 1, the company paid the shareholders a regular quarterly dividend of $0.08. It pays an annual dividend of $0.32, which translates to a dividend yield of 3.96% on the current share prices. Its four-year average yield is 3.43%. The company’s dividend payouts have grown at a CAGR of 38.67% over the past three years.
SXC’s forward non-GAAP P/E of 10.37x is 24.2% lower than the 13.68x industry average. Its forward EV/Sales multiple of 0.69 is 54.1% lower than the industry average of 1.50x. Likewise, its 4.47x forward EV/EBITDA is 42.3% lower than the 7.75x industry average.
SXC’s trailing-12-month levered FCF margin of 5.78% is 62.6% higher than the 3.55% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 15.65%, 7.25%, and 5.25% are 46.5%, 18.5%, and 11.9% higher than the industry averages of 10.68%, 6.12%, and 4.68%, respectively.
SXC’s revenues for the first quarter that ended March 31, 2023, increased 10.9% year-year-over-year to $487.80 million. Net income attributable to SXC and earnings per share came in at $16.30 million and $0.19, respectively. For the same quarter, cash and cash equivalents increased 4.5% year-over-year to $83.30 million.
As of March 31, 2023, its total current assets came in at $409.80 million, compared to $374 million as of December 31, 2022.
SXC’s EPS for the fiscal fourth quarter ending December 2023 is expected to increase 42.9% year-over-year to $0.20, while its revenue is expected to come in at $380.85 million. It surpassed its consensus revenue estimates in each of the trailing four quarters and consensus EPS estimates in three of the trailing four quarters, which is commendable.
Over the past year, the stock has gained 22.1% to close the last trading session at $7.89. The stock has gained 8.5% over the past month.
SXC’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
SXC has an A grade for Sentiment and a B for Value. It is ranked first within the same industry.
We have also given SXC grades for Growth, Momentum, Stability, and Quality. Get all SXC ratings here.
Hallador Energy Company (HNRG)
HNRG engages in the production of steam coal in the State of Indiana for the electric power generation industry.
HNRG’s forward EV/Sales of 1.41x is 26% lower than the 1.91x industry average. Its 3.88x forward EV/EBIT is 53% lower than the 8.25x industry average. Likewise, its forward Price/Sales multiple of 0.72 is 40.6% lower than the industry average of 1.22.
HNRG’s trailing-12-month levered FCF margin of 14.90% is 157.5% higher than the 5.79% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of 33.71%, 17.79%, and 9.85% are 43.6%, 58.6%, and 11.1% higher than the industry averages of 23.48%, 11.21%, and 8.87%, respectively.
HNRG’s total revenues for the first quarter (ended March 31, 2023) increased 219.7% year-over-year to $188.33 million. The company’s income from operations stood at $29.23 million, compared to the loss from operations of $8.68 million in the previous-year quarter. Its adjusted EBITDA rose significantly year-over-year to $34.02 million.
The company’s net income and net income per share came in at $22.05 million and $0.61, compared to net loss and net loss per share of $10.13 million and $0.33, respectively, in the year-ago quarter.
Analysts expect HNRG’s revenue and EPS for the fiscal year ending December 2023 to increase 74.8% and 140.4% year-over-year to $632.70 million and $1.37, respectively. Its revenue and EPS for the fiscal quarter ending September 2023 are expected to come in at $168.30 million and $0.56, respectively.
HNRG’s stock has gained 9.8% over the past five days to close its last trading session at $9.05. In addition, it has gained 77.1% over the past year.
HNRG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
HNRG has an A grade for Growth. It is ranked #4 within the same industry.
Beyond what we’ve stated above, we have also rated the stock for Value, Momentum, Sentiment, Stability, and Quality. Click here to view HNRG’s ratings.
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YZCAY shares were trading at $23.44 per share on Thursday morning, down $0.60 (-2.50%). Year-to-date, YZCAY has declined -5.08%, versus a 15.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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