Coal remains vital for various utilities despite climatic concerns and the push for cleaner energy. The United States Energy Information Administration projects electricity generation from coal to be 24% in both 2021 and 2022, up from 20% in 2020. Moreover, the global coal mining market is expected to increase at a CAGR of 2% between 2021 and 2025.
Natural gas prices are witnessing record rallies recently, prompting the utilities to switch to coal. The rising demand amid the prolonged supply cuts has led the U.S. coal prices to hit a two-year high. Coal from the central Appalachia region rose to $73.25 a ton last week, up 35% from the start of the year and the highest since May 2019.
The surging natural gas prices are expected to keep increasing the demand for coal. Thus, fundamentally strong coal stocks Alliance Resource Partners, L.P. (ARLP), CONSOL Energy Inc. (CEIX), and Natural Resource Partners L.P. (NRP) should benefit from these industry tailwinds.
Alliance Resource Partners, L.P. (ARLP)
ARLP is a natural resource company that primarily produces and sells coal. The company holds seven underground coal mining complexes in the United States and markets its products to utilities and industries. Its coal operations are managed and reported under the regional segments of the Illinois Basin and Appalachia.
Over the second quarter, ARLP strengthened its contract book, securing commitments to deliver approximately 5 million tons of coal over the yearly balance in 2021 and 3.7 million tons in 2022 through 2024. This should lead to substantial cash inflows over the period.
In the second fiscal quarter that ended June 30, ARLP’s total revenue increased 42% year-over-year to $362.44 million. Net income attributable to ARLP and earnings per limited partner unit stood at $44.04 million and $0.34, respectively, up substantially from their negative year-ago values. EBITDA rose 145.9% year-over-year to $118.60 million.
The consensus EPS estimate of $0.37 for the current quarter (ending December 2021) indicates a 37% year-over-year increase. Likewise, the consensus revenue estimate for the ongoing quarter of $423 million reflects an improvement of 15.4% from the prior-year quarter. Moreover, ARLP has an impressive earnings surprise history as it has topped the consensus EPS estimates in three out of the trailing four quarters. The stock has gained 302.5% over the past year and 154.2% year-to-date to close yesterday’s trading session at $11.39.
ARLP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A which equates to a Strong Buy rating in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ARLP has a Momentum, Sentiment, and Quality grade of A, and a Value grade of B. In the 12-stock MLPs – Other industry, it is ranked #1. This industry is rated B. Click here to see additional grades for ARLP (Growth and Stability).
Note that ALRP is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.
CONSOL Energy Inc. (CEIX)
CEIX produces and markets high-BTU bituminous thermal coal and crossover metallurgical coal. The company controls longwall mining operations in the Northern Appalachian Basin with flagship operations in the Pennsylvania Mining Complex.
The company is planning the recommencement of its Itmann Metallurgical Coal Project, aiming to construct a coal mining facility. The project is expected to begin in 2022 and will be endowed with a highly efficient rail load out and expanded capacity for processing third-party coal. This project should enhance CEIX’s operational capabilities and generate substantial returns for the company in the near future.
For the second fiscal quarter that ended June 30, CEIX’s total revenue increased 76.6% year-over-year to $287.16 million, while total coal revenue rose 154% year-over-year to $259.83 million. Adjusted EBITDA went up 146.5% from the prior-year quarter to $84.42 million.
Street expects its EPS to increase 632.4% year-over-year to $1.97 in the current year (fiscal 2021), while the consensus revenue estimate of $1.25 billion for the ongoing year indicates a 22.7% year-over-year increase.
CEIX’s stock has gained 682.8% over the past year to close yesterday’s trading session at $32.80. It has also gained 354.9% year-to-date.
It’s no surprise that CEIX has an overall grade of B, which translates to a Buy rating in our POWR Ratings system. The stock has an A grade for Momentum, and a B grade for Growth and Quality.
CEIX is ranked #3 out of 11 stocks in the Coal industry. This industry is rated A. To see additional grades for Value, Stability, and Sentiment, click here.
Note that CEIX is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
Natural Resource Partners L.P. (NRP)
NRP owns and operates a diversified portfolio of mineral properties in the United States. The company primarily holds interest in coal, industrial minerals and aggregates, and an equity investment in a soda ash operation in Ciner Wyoming.
NRP’s total revenues and other income increased 24.2% year-over-year to $38.51 million in the second fiscal quarter that ended June 30. Net income and net income per common unit came in at $15.38 million and $0.56, respectively, registering a substantial increase from their negative year-ago values.
Street revenue estimate of $202.70 million for the current year (fiscal 2021) reflects an increase of 44.5% from the prior year. Also, its revenue is expected to increase 2.7% year-over-year to $208.10 million in the following year. The stock has gained 113.1% over the past year and 85.8% year-to-date to close yesterday’s trading session at $25.55.
NRP’s POWR Ratings reflect this promising outlook. The stock has an overall grade of B, which equates to a Buy rating in our proprietary POWR Ratings system. The stock also has a Momentum grade of A, and a Sentiment and Quality grade of B. NRP is ranked #5 in the MLPs – Other industry.
In addition to the POWR Rating grades we’ve stated above, one can see NRP’s grades for Growth, Value, and Stability here.
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ARLP shares were trading at $11.76 per share on Thursday afternoon, up $0.37 (+3.25%). Year-to-date, ARLP has gained 170.53%, versus a 18.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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