On Mar 26, 2013 we have maintained our Neutral recommendation
on premier coal company
Peabody Energy Corporation
). Peabody currently has a Zacks Rank #3 (Hold).
Why the Reiteration
Peabody reported mixed results in the final quarter of 2012, with
its top line beating our estimate and the bottom line missing it.
The top line was boosted by higher shipments from Australian
mines, while the bottom line was affected by higher operating
The latest report of the Energy Information Administration
("EIA") suggests that the coal industry is poised for a recovery
in 2013-14, driven by rise in demand and expected increase in the
price of natural gas.
Total U.S. coal consumption will increase to 941 million short
tons (MMst) in 2013 and 955 MMst in 2014 from 889 MMst in 2012.
The gradual improvement in demand for coal in the U.S. will help
Peabody given its presence in the coal industry. In addition the
increase in demand from Asian countries will have a positive
impact on shipments.
The coal industry on the whole suffered in 2012 due to weak
demand and the switch to natural gas for electricity generation.
Our estimates for the first and second quarter of 2013 also show
a downtrend, with an estimated decline of 120.8% and 93.3% year
over year, respectively .
Besides, Peabody generates a large chunk of its revenues from a
limited group of customers. Peabody has long-term contracts with
these customers with some scheduled to expire this year. If the
company fails to renew contracts on favorable terms it would
surely impact profitability.
The coal industry is set for a gradual recovery and the companies
which warrant a look are
Alliance Resource Partners LP
Natural Resource Partners LP
ALLIANCE RES (ARLP): Free Stock Analysis
PEABODY ENERGY (BTU): Free Stock Analysis
CONSOL ENERGY (CNX): Free Stock Analysis
NATURAL RSRC LP (NRP): Free Stock Analysis
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