Kristoffer Inton, an equity analyst at Morningstar, pointed out that, much like crude oil, every coal basin has a different breakeven point. In Central Appalachia, where mines are very deep and expensive to excavate, natural gas prices have to be above $4 to make that coal cost-competitive. In the Powder River Basin, the less cost-intensive formation spreading across Montana and Wyoming, coal can compete with gas priced $2.50 to $3.50.
For that reason, Inton likes Cloud Peak Energy, which does all of its mining in the Powder River Basin and has the healthiest balance sheet among the publicly traded coal companies. Shares are down more than 70 percent over the past year.
On the flipside he would steer investors away from Arch Coal, which has a number of mines in the eastern U.S. and a debt-laden balance sheet. Shares have collapsed by 90 percent in the past 12 months. Shares of two other coal miners, Peabody Energy and Alpha Resources, have shed 90 percent of their value as well.
But the ripple effects are extending beyond coal stocks as well. As earnings season gets underway, analysts will be monitoring coal's effects on freight railroads, especially Union Pacific, Berhsire Hathaway's BNSF, Norfolk Southern, CSX, Kansas City Southern, Grand Trunk Corp. (the U.S. subsidiary of Canadian National Railway), and Soo Line (Canadian Pacific's U.S. operation).
Coal, a historically high-margin business for railroads, accounted for nearly 19 percent of revenue for the Class I railroads in the U.S. in 2014, according to the Association of American Railroads. Of the 1.8 billion tons of freight transported via rail in 2014, 39 percent was coal.
The eastern U.S. carriers, CSX and Norfolk Southern, are particularly exposed, since they haul carloads from Appalachia. Chris Wetherbee, a transportation analysts at Citigroup, says the two companies have lost a billion dollars in coal revenue over the last five years.
He expects to see that CSX, which reports after the bell on Tuesday, fared better in the second quarter than Norfolk Southern, with coal volumes falling 10 percent year-over-year compared with a decline of 20 percent at Norfolk Southern.
"The worry is western coal, which has been stable, could get worse," he said. "If that starts to break down like eastern coal, it could be much more negative for all of the rail stocks."
Wetherbee has buy ratings on CSX, Union Pacific, Candian Pacific and Kansas City Southern.