Fade to Black: 3 Coal Stocks to Offload as the Industry Shifts
The COP28 summit highlighted our society’s awareness of climate change and how we should address it. Its core theme focused on how the global economy should transition away from fossil fuels and meet the goals of the Paris Agreement. This has put fossil fuel companies like coal producers in a difficult spot; the majority of world economies are transitioning to renewable energy and alternative forms of fuel. This may be another sign to setting your portfolio away from the sector. As a result, these three companies are at the top of our list of coal stocks to sell before it’s too late.
CONSOL Energy Inc. (CEIX)
First on our list of coal companies to sell is CONSOL Energy Inc. (NYSE:CEIX), a metallurgical and thermal coal producer and exporter. The company owns and operates longwall mining operations in the Northern Appalachian Basin. CONSOL’s operations are divided into two main segments: CONSOL Marine Terminal for its export services through the Port of Baltimore and PAMC for most activities like mining and bituminous coal marketing and preparation. Its operations help generate fuel for almost one-third of the U.S. energy supply.
CEIX’s latest financial number was a mixed bag. Total coal revenue dropped 7.4% year-on-year, highlighting a potential start of a declining trend. In addition, the company has a massive exposure to the export market, which makes up 60% of its coal revenues, making it susceptible to global market volatility and geopolitical risk. Its latest financials also reported the average realized coal revenue per ton sold dipped by 3.4%. As a result of the ongoing challenges in the market, uncertainties in future demand, and declining numbers, CEIX is one of our top coal stocks to sell.
Peabody Energy Corporation (BTU)
Peabody Energy Corporation (NYSE:BTU) is a company that specializes in the production of thermal and metallurgical coal—the broker’s coal from other coal producers and trades coal and freight-related contracts. The company owns interests in 17 coal mining operations in the U.S., Australia, and an interest in Middlemount Coal Pty Ltd. BTU’s operations are divided into various segments: thermal mining, which operates its mines in New South Wales, Australia; seaborne metallurgical mining for its operations in Queensland, Australia, and Alabama.
Peabody Energy’s third-quarter report showed an alarming decline in net income and adjusted EBITDA. While the company has hit its milestones, like its re-entry into North Goonyella’s Zone B and Wards Well coal deposit, its increased project capital expenditures and higher costs are a cause for concern.
The company reported net income of $119.9 million, a decrease of 33.1% from the previous quarter – thanks in part to a $72 million settlement with the U.S. Department of Labor for black lung claims.
Fourth-quarter outlooks also highlight challenges in various segments, which could affect the company’s future profitability – making BTU another one of the three coal stocks investors should sell.
NACCO Industries, Inc. (NC)
The last company on our list is a holdings company for its three main business segments. NACCO Industries, Inc.’s (NYSE:NC) operations include North American Mining, which handles activated carbon, lithium, aggregates, and other industrial minerals. It also offers contract mining services for independently owned mines and quarries primarily operated in Texas, Arkansas, Virginia, and other states; lastly, its minerals management includes the Catapult Mineral Partners (Catapult) business, which is responsible for developing the company’s mineral interests.
In NACCO’s latest report, net income decreased by 136.1% YoY. According to the report, this decline was due to reduced revenue from the minerals management and coal mining segments. Its coal mining division had a 17% revenue drop, affecting its adjusted EBITDA and operating profit. It is also noted that its subsidiary, Mississippi Lignite Mining Company, experienced operational hurdles that increased costs per ton delivered. Similarly, its minerals management segment experienced a significant decline in operating profit and adjusted EBITDA. This was mainly due to the 68% decline in natural gas prices and the 12% decline in oil prices. While the company aims for diversification and growth, its current performance signals that investors have to look closer, as this may be the best time to sell NC while they still can.
On the date of publication, Rick Orford did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
