Blue Creek Project And Asian Market Expansion Will Strengthen Future Competitiveness

Key Takeaways

• The Blue Creek project will boost future earnings and cash flow, enhancing profitability and competitiveness with increased coal production.
  
• Focus on Asian market expansion, high-quality products, and cost discipline expects to drive revenue growth and improve margins as coal prices recover.
  
• Weak global coal prices, oversupply, and market conditions threaten Warrior Met Coal's revenues, while new tariffs and Blue Creek project risks strain liquidity and earnings.

Catalysts

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

• The Blue Creek growth project is expected to significantly impact Warrior Met Coal's future earnings. The project anticipates incremental annualized production of at least 4.5 million short tons after the longwall starts in 2026, which will enhance profitability and cash flows.
  
• Increased production and sales volumes from both existing operations and new production from Blue Creek are expected to drive revenue growth, especially as market dynamics improve and steelmaking coal prices recover from current lows.
  
• The company's focus on high-quality products and customer relationships, coupled with a strong operational base and cost discipline, positions Warrior Met Coal to improve net margins once market prices rebound, as their low-cost structure allows them to maintain competitiveness even in challenging market environments.
  
• The strategic focus on expanding sales in growing markets such as India and other parts of Asia, as well as operational efficiencies, is anticipated to bolster revenue streams and potentially improve net margins as these markets develop further.
  
• Continued investment into Blue Creek with a disciplined capital expenditure approach promises future revenue and earnings growth as the project is expected to begin generating substantial returns once operational, further supported by internally funded cash flows which could be directed towards shareholder returns.

Warrior Met Coal Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Warrior Met Coal's revenue will grow by 15.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 19.3% in 3 years time.
• Analysts expect earnings to reach $395.2 million (and earnings per share of $6.54) by about August 2028, up from $105.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $730.9 million in earnings, and the most bearish expecting $35.0 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, down from 27.3x today. This future PE is lower than the current PE for the US Metals and Mining industry at 21.4x.
• Analysts expect the number of shares outstanding to grow by 0.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.38%, as per the Simply Wall St company report.

Warrior Met Coal Future Earnings Per Share Growth

Risks

• The current market headwinds and weak global steelmaking coal prices, with coal prices reaching their lowest level since 2021, could continue to challenge Warrior Met Coal's profitability and revenues.
  
• Excess Chinese steel exports and weak demand have created ample supply, keeping pricing under pressure and negatively impacting margins and earnings.
  
• The ongoing weak conditions in the steel and raw material market, extending into seaborne market dynamics, are anticipated to weigh on steelmaking coal prices, threatening future revenue and profitability.
  
• Any new tariffs or trade measures could negatively affect financial results by changing purchasing behaviors or material changes in pricing, impacting overall revenues and earnings stability.
  
• Despite Blue Creek's promising growth prospects, substantial investment requirements and potential for delayed completion or market changes could strain liquidity and cash flows, affecting earnings and margins in the interim.

Valuation

• The analysts have a consensus price target of $60.333 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 $75.0, and the most bearish reporting a price target of just $50.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.0 billion, earnings will come to $395.2 million, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 7.4%.
• Given the current share price of $54.85, the analyst price target of $60.33 is 9.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.