Whitehaven Coal Ltd (ASX: WHC) shares have soared in 2024, clipping a 20% return since January. They have also rallied 31% over the past 12 months and now fetch $8.94 per share at the time of writing.
The recent surge in Whitehaven shares can likely be attributed to an increase in the price of coal. It bounced from lows of US$115 per tonne before peaking at US$147 per tonne in May. Whilst it has come down from that level, coal producers have held gains.
Whitehaven is a price taker on coal, meaning its share price is highly sensitive to fluctuations in coal's market price.
With the black rock currently priced at US$135 per tonne, analysts are turning more bullish on Whitehaven, with consensus rating the ASX coal stock a buy, according to CommSec.
Morgan Stanley is bullish on Whitehaven shares
Morgan Stanley has joined the buy club on Whitehaven shares. It ranks them – along with fellow ASX coal share Yancoal Ltd (ASX: YAL) – as its top picks in the space.
Morgan Stanley identifies metallurgical coal as its top pick amongst all the commodity groups, according to The Australian. It sees both Whitehaven and Yancoal well positioned to benefit from potential tailwinds.
For one, the broker expects the price of metallurgical coal to rise by 15% to US$290 per tonne by the end of the year.
It says underground fires at two key coal mines, that make up 2.5% of coking coal supply, – the Grosvenor mine in Australia and the Longview mine in the US – may cause supply imbalances, and be a tailwind for prices.
Analyst Sara Chan said the firm sees "a near-term opportunity in coking coal, especially after the recent share price pullback", per The Australian.
"Our recent China coal trip suggests the market is under-appreciating the supply constraints for met coal in the country", Chen advised investors.
If coal prices head towards these levels, Whitehaven shares could be a beneficiary. But, we shall see.
Some analysts are split
There are other tailwinds to coal pricing as well. China plans to add 70 gigawatts of coal capacity this year, while India's coal imports increased by 25% in 2023.
Meanwhile, Whitehaven has received mixed reviews from some analysts.
While Morgan Stanley has a bullish outlook, Goldman Sachs maintains a neutral rating on Whitehaven shares, citing potential challenges in achieving its medium-term guidance without requiring significant capital investment.
This could reduce its readily available cash flows for growth and to fund dividends.
In a July note, it said:
We continue to rate WHC Neutral based on: (1) Fully valued, (2) Thermal Coal market to soften further in 2024, (3) Negative FCF over FY25 & FY26 and low dividend yield while degearing, (4) But Met coal price well-supported at US$250/t near to medium term.
Time will tell what the impact of these market forces will have on Whitehaven shares.
Foolish takeaway
Whitehaven shares have experienced significant gains in 2024, driven by strong demand for coal and positive market sentiment.
Remember that analyst ratings are just opinions, and always conduct your own due diligence.
