2 Coal Stocks Worth Watching as the Industry Battles Challenges

Core Viewpoint - The Zacks Coal industry is experiencing significant challenges due to declining coal usage in U.S. thermal power plants, with projections indicating a marginal improvement in demand by 2025 followed by a drop in 2026 due to ongoing energy transitions and utility operators phasing out coal assets [1][3]. Industry Overview - The Zacks Coal industry includes companies involved in coal exploration and mining, with the U.S. holding an estimated 252 billion short tons of recoverable coal reserves, 58% of which is underground mineable [3]. - Five U.S. states contribute to approximately 70% of annual coal production and 60% of surface mine extraction [3]. - The industry faces long-term challenges as renewable energy adoption accelerates and coal-fired power plants are gradually retired [3]. Trends Impacting the Industry - Coal export volumes are expected to decline in 2025 and continue into 2026 due to a global supply surplus and falling prices, particularly affecting metallurgical coal exports [2][4]. - The U.S. coal production is projected to be 531 million short tons in 2025, an increase from 512 million short tons in 2024, but expected to drop to 494 million short tons in 2026 [5]. - Coal's share in U.S. electricity generation is anticipated to decrease from 17% in 2025 to 16% in 2026, driven by rising environmental concerns and the transition to cleaner energy sources [5]. Industry Performance and Valuation - The Zacks Coal industry ranks 230, placing it in the bottom 5% of 243 Zacks industries, indicating a lackluster performance outlook [6][8]. - The coal industry has outperformed the Zacks Oil and Gas sector and the S&P 500 composite over the past year, with a gain of 22.7% compared to a 4.2% decline in the Oil-Energy sector and a 13.9% gain in the S&P 500 [9]. - The industry currently trades at a trailing 12-month EV/EBITDA of 8.84X, significantly lower than the Zacks S&P 500 composite's 18.12X [12]. Notable Companies - Alliance Resource Partners (ARLP): Based in Tulsa, OK, ARLP produces coal primarily for utilities and industrial users, with projected sales tonnage in 2025 between 32.75-34 million short tons. The current distribution yield is 9.58% [16][17]. - SunCoke Energy (SXC): Located in Lisle, IL, SXC focuses on metallurgical coal essential for steel production. The company benefits from its acquisition of Phoenix Global, which is expected to enhance earnings and cash flow stability. The current dividend yield is 5.82% [21][22].