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Coal Stock SunCoke Energy Upped to Strong Buy; Here's Why

On Apr 9, Zacks Investment Research upgraded SunCoke Energy Inc. SXC to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

SunCoke Energy has been witnessing rising earnings estimates on the back of strong fourth-quarter 2015 results. This well-known independent producer of coke reported a positive earnings surprise of 220.0% in the fourth quarter of 2015.

Though coal fundamentals are expected to remain weak, the business model of SunCoke Energy is likely to come to its rescue. SunCoke Energy brings a flexible business model and its cost structure allows the company to offer steel-making customers excellent value at competitive prices.

Even during the difficult times of 2015, the company expanded its Coal Logistics platform, implemented a more holistic approach to stabilizing Indiana Harbor, further streamlined its corporate overhead and properly executed its capital allocation strategy.

SunCoke Energy now expects 2016 consolidated adjusted EBITDA to be between $210 million and $235 million. This outlook takes into consideration sustained performance from its Domestic Coke and Coal Logistics businesses along with the full-year benefit of the Convent acquisition and improvement at its Indiana Harbor facility.

The Zacks Consensus Estimate for 2016 moved up 45% to 29 cents per share over the last 30 days. For 2017, over the same time frame, the Zacks Consensus Estimate moved up by 29.6% to 35 cents per share.

A Different Battle for Others

The coal industry is being adversely impacted by stringent emission standards and increasing usage of cheap natural gas. The drop in demand and prices of coal has left more or less all coal industry players out in the cold. It led to a major slide in their share prices with companies like Peabody Energy Corporation BTU and Natural Resource Partners LP NRP having had to resort to a reverse stock split to save them from being delisted.

Other Stock on the Horizon

Apart from SunCoke Energy, another top-ranked stock in the coal space is Cloud Peak Energy CLD, carrying a Zacks Rank #2 (Buy).

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