Australian thermal coal at Newcastle Port, the benchmark for the vast Asian market, has more than doubled this year to about $180 a metric ton, driven by surging demand from utilities and plunging stockpiles. According to Goldman Sachs (GS), coal prices are expected to average $190 from October to December. Moreover, in Europe, coal prices have risen to $169, up from $65 in mid-March. In addition, with China’s bulk of electricity still being generated by coal, growing demand from the power sector should further drive the prices higher.
According to the Energy Information Administration, in the U.S., the share of electricity generation from coal is expected to rise from 20% in 2020 to about 24% in both 2021 and 2022 due to increased natural gas prices.
Therefore, fundamentally sound small-cap coal stocks Warrior Met Coal, Inc. (HCC), SunCoke Energy, Inc. (SXC), and Ramaco Resources, Inc. (METC) could benefit significantly from the rising coal prices and deliver solid returns in the near term.
Warrior Met Coal, Inc. (HCC)
HCC is a producer and exporter of metallurgical coal for the global steel industry, operating two underground mines located in Alabama. The company serves markets in the U.S., Europe, Asia, and South America. In addition, it has the operational capacity to mine about eight million tons of coal per year. HCC has a market capitalization of $1.2 billion.
HCC’s sales increased 41.3% year-over-year to $224.76 million for the second quarter ended June 30, 2021. Its total revenues grew 38.9% from the year-ago value to $227.44 million. The company’s operating loss declined 46.9% from the prior-year quarter to $2.83 million. Also, its net loss reduced 48.9% year-over-year to $4.68 million.
Analysts expect HCC’s revenue for the fiscal year 2022 to be $1.15 billion, representing a 32.7% growth year-over-year. Also, its EPS is expected to grow 273.5% in the current year and 209.5% next quarter. Its stock price has increased 38.4% over the past six months.
HCC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an A grade for Momentum, and a B for Growth. We’ve also graded HCC for Sentiment, Stability, Value, and Quality. Click here to access all of HCC’s ratings. HCC is ranked #4 of 10 stocks in the B-rated Coal industry.
SunCoke Energy, Inc. (SXC)
With a market capitalization of $521.47 million, SXC is a raw material processing and handling company. It serves steel and power customers, with principal business in cokemaking and logistics. The company operates through three segments: Domestic Coke; Brazil Coke; and Logistics. Additionally, SXC owns and operates five cokemaking facilities in the United States and one in Brazil.
In June, SXC priced its offering of $500 million aggregate principal amount of senior secured notes due 2029. The company intends to use the net proceeds from the offering for redeeming its outstanding senior unsecured notes due 2025.
During the second quarter ended June 30, 2021, SXC’s revenue increased 7.8% year-over-year to $364.3 million. The company’s operating income grew 36.1% from the year-ago value to $33.9 million. Its cash and cash equivalents rose 6.8% from $48.4 million as of December 31, 2020, to $51.7 million as of June 30, 2021. Also, the company’s total adjusted EBITDA increased 15.3% year-over-year to $68 million.
SXC’s revenue is expected to increase 14.7% year-over-year to $1.53 billion in the fiscal year 2021. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in three of the trailing four quarters. The company’s EPS is expected to increase 525% in the current quarter. Moreover, its stock has gained 42.7% over the past nine months and 83.6% over the past year.
SXC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, the stock has an A grade for Momentum, and a B for Quality and Value.
In addition to the POWR Rating grades I’ve just highlighted, one can see SXC’s ratings for Growth, Stability, and Sentiment here. The stock is ranked #1 in the same industry.
Ramaco Resources, Inc. (METC)
METC is an operator and developer of metallurgical coal in central and southern West Virginia, southwestern Virginia, and southwestern Pennsylvania. The company operates in three deep mines and a surface mine at Elk Creek mining complex. It also serves blast furnace steel mills and coke plants in the United States. METC has a market capitalization of $542.99 million.
In July, METC announced a public offering of senior unsecured notes due 2026. The size of the offering has been increased from the previously announced $25.0 million aggregate principal amount to $30.0 million aggregate principal amount of Notes. It plans to use the net proceeds from the offering for funding acquisitions, capital expenditures, and working capital.
METC’s revenue increased 109.1% year-over-year to $76.1 million for the second quarter ended June 30, 2021. The company’s net income grew 266.7% from the year-ago value to $9.9 million. Its adjusted EBITDA rose 67.6% from the prior-year quarter to $18.1 million. Also, the company’s EPS increased 283.3% year-over-year to $0.23.
METC’s revenue for the fiscal year 2021 to be $258.85 million, representing 53.2% year-over-year growth. The company’s EPS is expected to increase by 908.3% in the current year. METC’s stock price has surged 333.5% over the past nine months.
It’s no surprise that METC has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has an A grade for Momentum, and a B for Growth and Quality.
Click here to see the additional POWR Ratings for METC (Value, Stability, and Sentiment). METC is ranked #3 in the same industry.
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HCC shares were trading at $25.21 per share on Friday afternoon, up $1.94 (+8.34%). Year-to-date, HCC has gained 19.20%, versus a 17.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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