The fossil fuel Coal play an integral role in meeting the ever-increasing global energy demand thanks to rapid urbanization and modernization. Since coal can be found in small quantities in almost all countries across globe with recoverable reserves in nearly 70 countries, it is an automatic choice of energy source.
Despite concerns over air pollution due to usage of coal, its wide availability and low prices compared with other conventional and alternate fuel energy sources makes it a preferred choice of fuel in most nations.
As per a World Coal Association report, 37% of world electricity and 74% of world steel production depends on coal. The current estimated 1.1 trillion tons of proven coal reserves across globe and this fossil fuel can last nearly 150 years at current rates of production.
Since coal reserves will last much more than oil and natural gas reserves, initiatives have been taken across the globe to utilize coal more efficiently, keeping a check on emission levels.
According to a Reuters report, overall capital spending in U.S. coal industry has increased by nearly 27% in 2017. This is a positive development for the coal industry as in the past few years, coal operators were drastically cutting expenses to survive difficult times.
The pro-coal stance of the new administration, rising coal exports to Asian countries and retrofitting as well as upgrading of domestic coal plants are creating fresh demand in the coal industry.
Industry Outperformed S&P 500 Returns
The trailing 12-month EV/EBITDA ratio for the S&P 500 is 11.77 and the median level is 11.43.
But what really matters to investors is whether this group has the potential to perform better than the broader market in the quarters ahead. The valuation analysis above shows that the coal industry is presently trading cheaper than the broader sector and the Zacks S&P 500 composite, and currently has bright prospects despite concerns on pollution.
One reliable measure that can help investors understand the industry's prospects for a solid price performance is its earnings outlook. Empirical research shows that the earnings outlook for the industry, a reflection of the earnings revisions trend for the constituent companies, has a direct bearing on its stock market performance.