4 Stocks to Keep a Close Watch From the Coal Industry

Core Viewpoint - The Zacks Coal industry is facing challenges due to declining coal usage in thermal power plants in the U.S., but there is potential for growth driven by export demand, particularly from Europe amid ongoing geopolitical tensions [1][5]. Industry Overview - The Zacks Coal industry includes companies engaged in coal discovery and mining, with U.S. recoverable coal reserves estimated at 252 billion short tons, 58% of which is underground mineable coal [2]. - The industry is expected to see a decline in coal demand due to a shift towards renewable energy sources and the retirement of coal units [2]. Trends Impacting the Coal Industry - U.S. coal production is projected to decline by 14% to approximately 500 million short tons in 2024, with a further decrease to 475 million short tons in 2025 [3]. - The price of coal is expected to rise slightly to $2.53 per million British thermal units in 2024, which may provide some relief to coal operators [3]. - Emission policies and sustainability goals in the U.S. are leading to reduced coal usage, with coal's share in electricity generation expected to drop from 17% in 2023 to 16% in 2024 [4]. Export Dynamics - Despite a projected 6% drop in coal exports in 2024, the reopening of the Port of Baltimore is expected to improve export volumes in the long run [5]. - The World Steel Association forecasts a 1.7% increase in global steel demand in 2024, which could positively impact coal exports as steel production relies heavily on high-quality coal [5]. Industry Performance and Valuation - The Zacks Coal industry ranks 102 out of 251 Zacks industries, placing it in the top 41% [6]. - The coal industry has outperformed the Zacks Oil and Gas sector with a 15.3% gain over the past year, while the S&P 500 composite gained 28.8% [8]. - The industry currently trades at a trailing EV/EBITDA ratio of 4.34X, significantly lower than the S&P 500's 18.58X [9]. Notable Coal Stocks - Peabody Energy: Expected earnings per share for 2024 and 2025 have increased by 41.4% and 16.2%, respectively, with a current dividend yield of 1.32% [12]. - Arch Resources: The company is set to add 3 million tons of metallurgical coal annually, with a current dividend yield of 0.78% [15]. - SunCoke Energy: Anticipates a 4.4% increase in earnings per share for 2024, with a dividend yield of 4.58% [18]. - Ramaco Resources: Expected production volume for 2024 is 4 million tons, with a dividend yield of 4.28% [19].