3 Coal Stocks to Watch as the Industry Battles Multiple Challenges

Industry Overview - The Zacks Coal industry is experiencing significant challenges as coal usage in U.S. thermal power plants declines, with projections indicating a continued decrease in demand due to the rise of renewable energy sources [1][3] - The U.S. has an estimated 252 billion short tons of recoverable coal reserves, with 58% classified as underground mineable, expected to last for decades at current production levels [3] - Five U.S. states account for approximately 70% of annual coal production and 60% of coal extracted from surface mines, but the industry faces long-term challenges as coal demand declines [3] Trends Impacting the Industry - Environmental policies are negatively affecting coal usage, with the U.S. Sustainability Plan aiming for 100% carbon pollution-free electricity by 2030 and net-zero emissions by 2050 [4] - Natural gas has become more cost-efficient, and renewables are gaining traction, leading to a projected decline in coal's share of U.S. electricity generation to 16% by 2026 [5][6] - Coal production in the U.S. is expected to decrease to 520 million short tons in 2026 from 531 million short tons in 2024, driven by lower demand and higher renewable energy usage [6] Export and Production Outlook - U.S. coal export volumes are projected to increase by 1% in 2026, primarily due to an 8% rise in metallurgical coal shipments, supported by expansions and reopenings of mines [2][7] - Despite a decrease in overall coal production, companies like Warrior Met Coal, Peabody Energy, and Ramaco Resources are expected to benefit from their high-quality metallurgical coal production during this challenging phase [2] Industry Performance and Valuation - The Zacks Coal industry currently ranks 235, placing it in the bottom 4% of 244 Zacks industries, indicating weak near-term performance prospects [8][9] - 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 28.8% compared to 8.9% and 19.7% respectively [11] - The industry is trading at a trailing 12-month EV/EBITDA ratio of 9.58X, significantly lower than the Zacks S&P 500 composite's 18.8X [14] Company Highlights - Warrior Met Coal, Inc.: Produces premium quality metallurgical coal, with a projected earnings per share increase of 854.5% year-over-year for 2026 and a current dividend yield of 0.36% [16][17] - Peabody Energy Corporation: Engages in coal mining with flexibility to increase volumes, showing a projected earnings per share increase of 909.3% year-over-year for 2026 and a current dividend yield of 0.98% [21][22] - Ramaco Resources, Inc.: Focuses on high-quality metallurgical coal, with a projected earnings per share growth of 136.45% year-over-year for 2026 and a current dividend yield of 1.1% [25][26]