Coke Supply And Logistics Projects Will Secure Stability Amid Uncertainty

Key Takeaways

• The extension of significant supply agreements and strategic shipment scheduling ensures revenue stability and potential EBITDA growth amid market volatility.
  
• Strategic capital allocation and logistics improvements signal potential for increased revenue, earnings growth, and enhanced efficiency in the long term.
  
• Challenging market conditions and uncertain steel industry outlook could pressure revenue, earnings, and growth prospects, impacting profitability and operational stability.

Catalysts

Operates as an independent producer of coke in the Americas and Brazil.

• The extension of the Granite City coke supply agreement with U.S. Steel through September 2025, with the option for an additional 3 months, provides stability in revenue for the Domestic Coke segment. This extension ensures a steady flow of income in a volatile market.
  
• Efforts to negotiate the shipment schedule with Cliffs for Haverhill II, extending shipments more evenly throughout the year, are expected to stabilize and potentially enhance EBITDA in the second half of the year.
  
• The focus on profitable growth opportunities beyond the GPI project and maintaining discipline in capital allocation suggest potential long-term revenue and earnings growth. This includes maintaining dividends and strategically investing in high-value projects.
  
• The completion of the barge unloading capital expansion project at KRT (currently on time and budget) could boost logistics capacity and efficiency, potentially increasing revenue and net margins for the Logistics segment.
  
• Maintaining a strong liquidity position and managing capital expenditure prudently in the current market conditions position the company to capitalize on future opportunities and weather short-term volatility, potentially leading to improved earnings stability.

SunCoke Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SunCoke Energy's revenue will decrease by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.0% today to 4.2% in 3 years time.
• Analysts expect earnings to reach $63.3 million (and earnings per share of $0.77) by about May 2028, down from $95.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.7x on those 2028 earnings, up from 8.6x today. This future PE is greater than the current PE for the US Metals and Mining industry at 20.6x.
• Analysts expect the number of shares outstanding to grow by 0.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.72%, as per the Simply Wall St company report.

SunCoke Energy Future Earnings Per Share Growth

Risks

• The spot blast coke pricing environment remains highly challenged, leading to lower spot blast coke sales volumes, which can negatively impact revenue and net margins.
  
• Lower economics and volumes from the Granite City contract extension have contributed to a decrease in adjusted EBITDA compared to the prior year period, affecting earnings.
  
• The steel industry outlook remains uncertain and volatile, which may result in unpredictable demand for coke and affect future revenue and net margins.
  
• The company faces market volatility in its Logistics segment, and unexpected changes could impact operational stability and future revenue.
  
• Capital expenditure guidance is being lowered due to uncertainties in the economic environment, which might impact the company's future growth prospects and potentially affect net margins if deferred projects lead to maintenance issues later on.

Valuation

• The analysts have a consensus price target of $12.0 for SunCoke Energy based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.5 billion, earnings will come to $63.3 million, and it would be trading on a PE ratio of 20.7x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of $9.8, the analyst price target of $12.0 is 18.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.