Warrior Met Coal: Bullish Consensus, But I Am Not Fired Up

Warrior Met Coal (HCC) has become a poster child for the cyclical nature of commodity markets. After a brutal first quarter of 2025 that saw a net loss of $8.2 million—marking a stark reversal from its $137 million profit in Q1 2024—the company's stock trades near $50, with analysts forecasting a sharp rebound in 2026. Yet, beneath the bullish revenue forecasts lies a disconnect between top-line optimism and bottom-line reality that investors should treat with caution.

The Divergence: Revenue vs. EPS

The numbers tell a story of two timelines. Analysts project Warrior Met's revenue to drop 15% in 2025 before surging 32% in 2026, driven by expectations of higher steelmaking coal prices and the completion of its Blue Creek project. Meanwhile, EPS estimates plummet 65% in 2025 to -$0.28, only to rebound 212% in 2026 to $5.41. This chasm raises critical questions: Why is the recovery in EPS so delayed? And does the optimism baked into the stock price account for the risks?

The Bullish Case: Blue Creek and Cost Discipline

Proponents of HCC argue that the Blue Creek project—a $250 million investment to expand production capacity—will unlock growth. By 2026, the mine could add 2.5 million tons annually, boosting sales volumes. Additionally, the company's cost-cutting efforts have kept cash costs per ton at $112.35 in Q1 2025, down from $133.48 a year earlier. These moves, combined with anticipated coal price recoveries, form the foundation of the bullish narrative.

Analysts also point to a $61.83 average price target, implying 19% upside from current levels, while a $76 high target suggests even more optimism. Such valuations hinge on the assumption that 2026's projected $5.41 EPS materializes. At current prices, the stock trades at a forward P/E of ~11x, which appears reasonable—until you dig deeper.

The Bear Case: Risks in the EPS Timeline

Three factors cast doubt on the EPS rebound:
1. Price Volatility: Steelmaking coal prices (tracked by the Platts index) fell 40% year-over-year in Q1 2025. While analysts assume a rebound, global steel demand remains tied to macroeconomic headwinds, particularly in China. A prolonged slump could delay or diminish the EPS recovery.
2. Execution Risk: The Blue Creek project is on track for completion by Q2 2026, but delays or cost overruns are common in mining. Even a six-month delay could disrupt production timelines and revenue forecasts.
3. Trade Policy Uncertainty: The company has explicitly stated that its 2025 guidance does not account for potential tariffs or trade disputes. If new tariffs emerge, margins could compress further, worsening the EPS outlook.

Meanwhile, the dividend yield of just 0.15% underscores the fragility of Warrior Met's financial health. A company struggling to post profits in 2025 is unlikely to reward shareholders generously, even if 2026's EPS materializes.

Valuation: Overpriced for a Cyclical Bet?

At $51.78, Warrior Met's stock trades at a trailing P/E of 10.3x—a discount to its five-year average of ~15x. However, this metric is misleading because the trailing EPS includes a Q1 2024 $2.62 EPS, which inflated the average. A forward P/E of ~11x on the 2026 EPS target may seem reasonable, but it assumes:
- Coal prices rebound to 2023 levels.
- Blue Creek delivers on schedule and at cost.
- No further tariffs or inflationary pressures.

If any of these assumptions fail, the stock could underperform. A P/E contraction to 8x on a $5.41 EPS would still imply a price of $43.28—below current levels.

The Bottom Line: A Risky Cyclical Play

Warrior Met's story is a classic “bet on the cycle.” Investors bullish on a rebound in steelmaking coal demand and the Blue Creek project are justified in their optimism. But the path to EPS recovery is fraught with execution risks and external uncertainties.

For conservative investors, the stock's valuation leaves little margin of safety. The $76 price target, for instance, requires EPS to hit $9.91—a 82% premium to the average estimate—which would demand near-perfect conditions.

Investment Advice:
- Hold or Avoid: Until coal prices stabilize and Blue Creek's contributions become clearer, Warrior Met's valuation feels stretched.
- Consider Short-Term Plays: Investors willing to take on risk might trade the stock ahead of the Q2 earnings call (early August . However, a negative update on tariffs or cost pressures could trigger a selloff.

In short, the bullish consensus has priced in a best-case scenario. But with Warrior Met's margins and coal prices still under pressure, the risks outweigh the rewards for now.