Blue Creek Project Will Begin Premium Coal Production In Q2 2026

Key Takeaways

• The Blue Creek project is poised to boost production capacity and revenue, potentially improving operational efficiency and profitability.
  
• Strategic sales management and demand growth in key regions could drive higher revenue and enhanced margins in the future.
  
• Weak global demand, oversupply, and lower pricing power may suppress Warrior Met Coal's revenues, with significant capital expenditure potentially impacting cash flow and profitability.

Catalysts

Engages in the production and export of non-thermal steelmaking metallurgical coal for the steel production by metal manufacturers in Europe, South America, and Asia.

• The Blue Creek growth project is expected to significantly increase production capacity, with an incremental annualized production of 4.8 million short tons of premium high-vol A steelmaking coal starting in Q2 2026. This is likely to enhance revenue and profitability through premium pricing.
  
• The completion of key infrastructure components at Blue Creek, such as the preparation plant (expected online in mid-2025) and coal transportation infrastructure, positions the company to handle increased production capacity, potentially improving operational efficiency and future earnings.
  
• Warrior Met Coal is strategically managing sales and geographies in anticipation of improved global steel demand, which could lead to higher revenue and profitability once market conditions turn favorable.
  
• Potential demand growth in India and stabilization in other regions might drive an increase in steelmaking coal prices, positively impacting Warrior Met Coal’s revenue and net margins.
  
• Cost control measures and capital discipline in executing the Blue Creek project could lead to enhanced margins and cash flows once the project comes online, supporting future earnings growth.

Warrior Met Coal Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Warrior Met Coal's revenue will grow by 4.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 23.8% today to 21.6% in 3 years time.
• Analysts expect earnings to reach $394.8 million (and earnings per share of $7.89) by about December 2027, up from $378.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $542.9 million in earnings, and the most bearish expecting $251.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.0x on those 2027 earnings, up from 8.1x today. This future PE is lower than the current PE for the US Metals and Mining industry at 16.2x.
• Analysts expect the number of shares outstanding to decline by 1.47% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.12%, as per the Simply Wall St company report.

Warrior Met Coal Future Earnings Per Share Growth

Risks

• Weak global demand and an oversupply of steelmaking coal, primarily due to excess Chinese steel exports, could continue to suppress steel and coal prices, negatively affecting Warrior Met Coal's revenues and margins.
  
• Lower production and sales volumes, attributed to selective market participation and weak market conditions, could lead to decreased revenue and profit margins.
  
• Significant capital expenditure and investment in the Blue Creek growth project, if not offset by increased production and favorable market conditions, could pressure the company's financials, affecting cash flow and earnings.
  
• Reduced pricing power due to lower coal prices and competitive market dynamics could further erode Warrior Met Coal's net selling price and profit margins.
  
• Potential market uncertainties in key growth regions like India, along with cautious global infrastructure spending, could hinder expected demand recovery, impacting future revenues and earnings.

Valuation

• The analysts have a consensus price target of $77.0 for Warrior Met Coal based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $90.0, and the most bearish reporting a price target of just $70.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $1.8 billion, earnings will come to $394.8 million, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 7.1%.
• Given the current share price of $58.71, the analyst's price target of $77.0 is 23.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.