HCC - Warrior Met Coal: Not A Buy But One For The Watchlist

2024-06-03 12:13:44 ET

Summary

• HCC has delivered outstanding alpha over the past year, outperforming the S&P 500 and a popular mid-cap portfolio by 4-5x.
• HCC's low-cost and flexible prowess in the seaborne coking coal terrain puts it in a good position to cater to the burgeoning appetite for steel in places like India.
• HCC also maintains an exceptional balance sheet.
• Inventory challenges and CAPEX commitments related to Blue Creek will make FCF generation a challenge in the short term, and the stock is also priced at an elevated EV/EBITDA multiple.
• The risk-reward on the standalone and relative strength charts look unappealing.

Introduction

Alabama-based Warrior Met Coal ( HCC ), a mid-cap stock noted for its pure-play exposure to premium steelmaking coal (hard coking coal aka HCC, or metallurgical coal), has enjoyed a tremendous 12 months. During a period when the prime equity benchmark has generated respectable returns of ~20%, and a popular mid-cap portfolio has generated even better returns of 25%, HCC has comfortably trounced these diversified equity behemoths, generating excess returns of roughly 4-5x more....

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