We have maintained our Neutral recommendation on coal producer
Peabody Energy Corporation
). The status quo is explained by an unfavorable guidance for
The sluggish pace of the U.S. economic recovery and stringent
environmental regulation continue to weigh on the company. These
have prompted the company to shut down two of its mines in the
second half of the year.
The recent company guidance shows that the first quarter 2013
results will be negatively impacted by a 10% increase in unit
costs in Australia, a 5% decline in average realized prices of
coal due to expiration of high priced coal contracts and a loss
of 2 million tons of sales in the U.S. due to a decline in
market-related demand. However, the company expects to reverse
the tide as the year progresses.
Besides, U.S. sales volume in 2013 is expected to be lower than
2012 levels, with higher sales expectation from the Australian
platform marginally arresting the downtrend.
The positive catalysts for the company could be the recovering
prices of natural gas in the U.S. A biting winter could also
revive demand. Increasing coal based electricity generation in
India and Japan could also benefit the company given its
Despite an expected recovery in 2013, the prospects for the coal
company are far from robust. The lingering recession in Europe
and increasing use of alternate energy in the U.S. will continue
to pose challenges for the coal companies.
The Zacks Consensus Estimates for the fourth quarter and full
year 2012 are 26 cents and $1.97 per share, respectively. The
estimates reflect a year-over-year decline of 80.9% and 52.8%
from the respective prior-year levels. The downtrend points
towards a steady decline in the demand for coal thereby hurting
the earnings prospects of the company.
Peabody Energy retains a short-term Zacks #3 Rank (Hold rating).
We presently prefer
Hallador Energy Company
) holding a short-term Zacks #2 Rank (Buy rating).
St. Louis, Missouri based Peabody Energy Corporation is a private
sector coal mining company. The company has interests in 28 coal
operations located in the United States and Australia, and has
joint venture interests in a Venezuelan mine.
PEABODY ENERGY (BTU): Free Stock Analysis
HALLADOR ENERGY (HNRG): Free Stock Analysis
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