Chicago, IL – January 31, 2025 – Today, Zacks Equity Research discusses Peabody Energy BTU, Warrior Met Coal HCC, SunCoke Energy SXC and Ramaco Resources, Inc. METC.
The Zacks Coal industry stocks are suffering due to a decline in the use of coal in thermal power plants in the United States. In 2025, the demand for coal will be adversely impacted by the planned retirement of coal units and the utilization of more renewable sources for electricity generation. The ongoing energy transition, with utility operators steadily phasing out coal units, may hit the coal industry.
The utilities are heavily relying on their inventories to meet the demand for coal. Hence, coal production volume is coming down. Coal export volumes in 2025 and 2026 are expected to drop due to a strong dollar. Despite a drop in coal production, low-cost production assets are likely to boost prospects of coal stocks like Peabody Energy. Other coal stocks like Warrior Met Coal, SunCoke Energy and Ramaco Resources, Inc., with high-quality met production volumes, are expected to gain during this difficult phase.
The Zacks Coal industry comprises companies involved in the discovery and mining of coal. Coal is mined through the opencast or the underground method. The commodity is valued for its energy content and used worldwide to generate electricity and manufacture steel and cement. Per the U.S. Energy Information Administration ("EIA") report, the current U.S. estimated recoverable coal reserves are about 252 billion short tons, of which about 58% is underground mineable coal.
Given the current production rates, coal resources are likely to last many years. Five states in the United States contribute 70% of the yearly coal production and 60% of the coal production from surface mining. Per EIA, the demand for coal will decline due to the usage of more renewable assets and a gradual shutdown of coal-powered generation units, hurting the prospects of the coal industry.
The transition towards clean energy sources also reduces the demand for coal. EIA projects coal exports from the United States to drop 2.8% in 2025 from the 2024 levels and drop further by 1% in 2026. Per EIA, weakness in the U.S. export volumes can be attributed to a strong dollar, relatively thin margins in the current global pricing environment, and the prospects of increased thermal coal exports from other countries.
The World Steel Association forecasts an expected increase in global steel demand by 1.2% in 2025 to reach 1,772 Mt. Steel production requires ample high-quality coal, and nearly 70% of global steel production depends on it. With the global increase in steel demand, high-quality U.S. met coal exports can improve from current levels.
Despite Reliability, Emission Policy & Drop in Prices Will Hurt: Coal is still a reliable source of energy and ensures 24x7 electricity production from the generation units. Yet, increasing emission concerns are resulting in reduced usage of coal in electricity generation. The United States' Sustainability Plan includes an aim toward transitioning to 100% carbon pollution-free electricity by 2030 and achieving net-zero emissions by 2050.
Utility operators are now focused on generating more electricity from clean energy sources, lowering coal usage and gradually shutting down the existing coal-based electricity generation units. Coal industry operators should brace themselves for challenges as several electric utilities have decided to become carbon neutral and are aggressively cutting down on coal usage. Coal-fired units are gradually becoming backup units for utility operators in case of emergency power requirements.
EIA projects 2025 coal price to decrease 1.2% from the 2024 level to $2.46 per million British thermal units (Btu) and further drop 0.4% in 2026 to reach $2.45 per million Btu. This would adversely impact the coal operators as they continue to fight a tough battle against other cleaner energy sources.
Interest Rate Decline is a Tailwind: In order to maintain, upgrade and expand coal operations, coal company operators approach capital markets for loans. The U.S. Federal Reserve, through multiple rate cuts, has lowered the benchmark rate by 100 basis points, bringing down rates to a range of 4.25-4.50%. Capital-intensive coal companies will benefit from the Fed's decision to reduce interest rates. The drop in interest rates is a big positive for coal operators that are planning investments in infrastructure upgrades.
The Zacks Coal industry is an eight-stock group within the broader Zacks Oil and Energy sector. The industry currently carries a Zacks Industry Rank #241, which places it in the bottom 4% out of 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates lackluster performance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry's position in the bottom 4% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group's earnings growth potential. Since January 2024, the coal industry's earnings estimates for 2025 have declined 22.6% to $3.29 per share.
Before we present a few coal stocks that you may want to keep track of, let's take a look at the industry's recent stock market performance and valuation picture.
The Zacks Coal industry has underperformed the Zacks Oil and Gas sector and Zacks S&P 500 composite over the past year.
The stocks in the coal industry have lost 7.7% against the Zacks Oil-Energy sector's rally of 8%. The Zacks S&P 500 composite has gained 26.1% in the same time frame.
Since coal companies have a lot of debt on their balance sheet, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio.
The industry is currently trading at a trailing 12-month EV/EBITDA of 4.12X compared with the Zacks S&P 500 composite's 18.88X and the sector's 4.41X.
In the past five years, the industry has traded as high as 7.00X and as low as 1.82X, with the median being 3.98X.
Peabody Energy: St Louis, MO-based Peabody Energy engages in the coal mining business and has thermal and metallurgical operations. It has the flexibility to increase volumes should demand warrant. The company has few coal supply agreements (excluding trading and brokerage transactions) expiring at various periods, assuring a steady flow of revenues.
The Zacks Consensus Estimate for Peabody Energy's 2025 earnings per share has gone down by 21.6%, respectively, over the past 60 days. The current dividend yield of the company is 1.66%. Peabody Energy currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Warrior Met Coal, Inc.: Brookwood, AL-based Warrior Met produces and exports metallurgical coal for the steel industry and exports 100% of its production. Variable cost structure that adjusts with benchmark prices, allowing the company to remain flexible and adapt to changing circumstances. Warrior Met invests strategically to further strengthen its coal operation. The company is presently developing its Blue Creek mine.
The Zacks Consensus Estimate for its 2025 earnings per share has gone down by 13.6% in the last 60 days. The current dividend yield of the company is 0.61%. Warrior Met currently carries a Zacks Rank of 3.
SunCoke Energy: Lisle, IL-based SunCoke Energy is a raw material processing and handling company serving steel and power customers, with principal businesses in coke making and logistics. With an annual 5.9 million tons of coke-making capacity, it is poised to benefit from rising met coal exports and increasing demand for met coal from the steel industry. The company continues to pursue balanced capital allocation, including growth opportunities and returning capital to shareholders and is adding new customers and products at logistics terminals.
The Zacks Consensus Estimate for its 2025 earnings per share has remained same in the last 60 days. The current dividend yield of the company is 4.84%. SunCoke Energy carries a Zacks Rank #3 at present.
Ramaco Resources, Inc.: Lexington, KY-based Ramaco Resources is the developer of high-quality, low-cost metallurgical coal and is poised to benefit from improving metallurgical coal demand. The company now has the capacity to produce nearly 4 million tons annually and has the capability to increase production volumes organically to more than 7 million tons, depending on demand.
The Zacks Consensus Estimate for its 2025 earnings per share indicates a decline of 65% in the last 60 days. The current dividend yield of the company is 5.81%. Ramaco Resources currently has a Zacks Rank of 3.
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Peabody Energy Corporation (BTU) : Free Stock Analysis Report
Warrior Met Coal (HCC) : Free Stock Analysis Report
SunCoke Energy, Inc. (SXC) : Free Stock Analysis Report
Ramaco Resources, Inc. (METC) : Free Stock Analysis Report
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