U.S. coal stocks are staging a short-term recovery as metallurgical coal prices surge between 10% and 15% in a single week, driven by supply disruptions in China, potential El Niño impacts on global supply chains and elevated European gas prices. The rally in seaborne metallurgical coal has lifted valuations, though Jefferies cautions that sector gains could reverse by early 2027 as cost inflation and operational challenges weigh on earnings.
Analysts at Jefferies have identified five U.S. coal producers as key beneficiaries of the supply squeeze, with three rated as buys and one as neutral. Warrior Met Coal is the top U.S. pick, recommended for a six-month or longer horizon based on its premium low-volatility metallurgical coal production, variable cost structure and net cash position. The company trades at an enterprise-value-to-EBITDA multiple of 4.6x for 2027 and offers a free cash flow yield of 12.2%. Warrior Met reported adjusted earnings of $1.65 per share and revenue of $509.7 million in the second quarter, both exceeding analyst expectations.
Core Natural Resources is also rated a buy, supported by better-than-expected cost and cash flow performance in the second quarter. The company benefits from operational momentum and is positioned to capitalize on higher metallurgical coal prices, though it does not require elevated prices to generate positive cash flow and capital returns. Core Natural Resources trades at an EV/EBITDA of 4.7x for 2027 with a free cash flow yield of 10.7%.
Peabody Energy is recommended as a buy for the short term, with higher coal prices providing support. However, the investment case hinges on the successful expansion of its Centurion asset, which carries operational risks. Peabody trades at an EV/EBITDA of 3.8x for 2027 and a free cash flow yield of 10.5%, assuming the Centurion expansion proceeds as planned. The company reported a wider-than-expected net loss of $0.74 per share in the second quarter, falling short of Wall Street forecasts. Following the results, Benchmark trimmed its price target for Peabody to $36 while maintaining a buy rating.
Ramaco Resources is classified as a high-risk, high-return play, with operational improvements and organic growth in metallurgical coal expected to drive positive free cash flow as prices rise. The company trades at an EV/EBITDA of 8.5x for 2027 and a free cash flow yield of 7.7%. In the second quarter, Ramaco reported revenue of $144.8 million, surpassing expectations, but its loss widened to $0.26 per share, exceeding forecasts.
Alpha Metallurgical Resources remains rated neutral, as its high exposure to volatile metallurgical coal prices leaves it vulnerable to market swings. Jefferies does not expect any sustainable price recovery for the company despite an anticipated rebound in prices.
