AI power demand is forcing a coal revival. Jefferies sees more than 30% rally in one such stock

Jefferies has upgraded its outlook for the U.S. coal industry, citing a 15% year-over-year increase in thermal coal demand driven by growing power consumption, notably from AI data centers, which is allowing coal to regain market share from natural gas. The firm upgraded Core Natural Resources (CNR) to buy, raising its price target by 40% to $125, and increased Peabody Energy's (BTU) target by 24% to $42, anticipating an earnings upgrade and equity valuation re-rating cycle for thermal coal miners.

Analysis

Jefferies has issued a strongly bullish outlook for the U.S. thermal coal industry, citing a significant 15% year-over-year increase in demand. This resurgence is primarily attributed to growing U.S. power consumption, notably driven by the proliferation of Artificial Intelligence data centers. The firm highlights coal's ability to regain market share from natural gas, reversing a multi-year decline where demand fell from one billion tons to under 400 million tons.

In response to this improving fundamental landscape, Jefferies upgraded Core Natural Resources (CNR) to a "Buy" rating, increasing its price target by 40% to $125, implying a 28% upside. Peabody Energy (BTU) also saw its price target raised by 24% to $42, suggesting over 30% potential upside for investors. These target adjustments reflect an anticipated earnings upgrade cycle and equity valuation re-rating for U.S. thermal coal miners.

The analyst's view suggests the industry's "worst days appear to be over," positioning thermal coal as a beneficiary of unexpected demand shifts. This development signals a potential re-evaluation of energy infrastructure needs, where traditional sources like coal could play a more critical role in meeting surging power requirements. The strong positive sentiment (0.85) and bullish tone underscore the conviction in this sector's turnaround.

Key Decisions for Investors

• Consider initiating or increasing exposure to U.S. thermal coal miners like CNR and BTU, given Jefferies' upgrades and projected earnings re-rating.
• Monitor the sustainability of AI-driven power demand growth and its continued impact on thermal coal consumption, as this is a key driver of the improved outlook.
• Evaluate the long-term implications of this demand shift on energy policy and environmental regulations, which could introduce future headwinds despite current tailwinds.