US coal producers to report strong Q2 earnings as stocks outpace broader market

Analysts expect publicly traded U.S. coal companies to report higher second-quarter earnings and revenue compared to the prior quarter and the second quarter of 2021.

Investors are jumping into the U.S. coal space, with stock prices soaring above the performance of the S&P 500 over the past year. While the long-term prospects for U.S. coal volumes remain grim, domestic and seaborne demand improved from pandemic-driven lows and the international markets are paying relatively high prices for coal used in both power production and steelmaking. All seven of the publicly traded U.S. coal producers analyzed by S&P Global Market Intelligence are expected to outperform their most recent results.

* Weekly U.S. coal production * U.S. coal mine production summary (Excel template) * Summer demand lends price momentum to US coal

B. Riley Securities is updating its price decks for coal producers due to prices that remain well above historical levels, despite softening demand for steel, according to a July 7 note.

"Given the record pricing, we believe that investors will also witness record results for several producers during the second quarter," the analysts wrote. "However, this time has its unique challenges as well with rail bottlenecks limiting sales (both domestically and into the export market) and inflationary pressures likely pushing costs above or near the top of prior guidance ranges."

Metallurgical coal used to make steel typically sells for a much higher price than thermal coal used to generate power, but an energy crunch in Europe brought on by Russia's invasion of Ukraine in late February pushed some seaborne thermal price indexes above metallurgical coal prices. The analysts recommended investors take up shares of Arch Resources Inc. for exposure to metallurgical coal and suggested Peabody Energy Corp. and Consol Energy Inc. for exposure to thermal coal markets.

Revenue, earnings per share jump

Analysts project coal companies raked in much more cash in the second quarter than they did in the same period of 2021.

For example, Alpha Metallurgical Resources Inc. reported revenues of $395.3 million in the second quarter of 2021, and the analyst consensus estimate suggests that will rise 216.1% to $1.25 billion for the second quarter of 2022. The steelmaking coal producer is expected to report higher revenues than any other company, based on analysts' estimates.

Other companies expected to increase revenue by more than 100% year over year include Warrior Met Coal Inc., Arch Resources Inc. and Ramaco Resources Inc. Analysts also had high hopes for the U.S. coal sector in the first quarter of 2022 and, while many performed well compared to previous periods, most fell short of analysts' earnings estimates.

Coal stocks booming

Investors have taken notice of the U.S. coal sector's improved financial outlook and stock prices have soared.

The S&P 500 index decreased by 13.1% year over year as of July 14, while every major U.S. coal stock analyzed grew sharply in value. Shares of Alpha are up more than 425% over the past year, while the stock price of Pennsylvania-based coal producer Consol increased more than 180% over the same period.

Even the lowest performing U.S. coal stock analyzed, Warrior Met, increased its share price by nearly 65% over the past year. The company's stock has climbed despite a more-than-yearlong union strike at its underground metallurgical coal mines in Alabama, which has limited sales volumes.

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