Zacks Industry Outlook Highlights: Peabody Energy, Arch Coal, Cloud Peak Energy and Alliance Holdings
For Immediate Release
Chicago, IL - November 17, 2015 - Today, Zacks Equity Research discusses the Coal, part 2, including Peabody Energy Corp. ( BTU ), Arch Coal ( ACI ), Cloud Peak EnergyInc. ( CLD ) and Alliance Holdings GP, L.P. ( AHGP ).
Industry: Coal, part 2
Coal is presently produced in more than 50% of the U.S. states. The top five coal-producing states -- Wyoming (39% of the total), West Virginia (12%), Kentucky (8%), Illinois (5%) and Pennsylvania (5%) -- contribute nearly 79% of the total coal production of the country, per reports from the U.S. Energy Information Administration (EIA).
In keeping with the statistics, Wyoming is home to two of the largest coal producing companies of the country: Peabody Energy Corp. ( BTU ), operating the North Antelope Rochelle Mine, and Arch Coal ( ACI ), running the Black Thunder Mine.
Unfortunately, all coal producers have been affected by the drastic fall in demand and consequently coal prices, which has taken a toll on their earnings performance. Peabody Energy and Arch Coal incurred losses in the last four quarters. Consequently, stock prices of both these leading coal companies have been hit hard, so much so that they had to resort to a reverse stock split to increase the price of their shares and maintain listing on the NYSE.
Coal remains a dominant source of power generation worldwide despite the increasing use of other sources. However, natural gas and renewables are eating away coal's share at a rapid pace. The new Clean Power Plan, announced in Aug 2015 by the U.S. Environmental Protection Agency (EPA) calls for CO2 reduction of 28% by 2025 and 32% by 2030, from 2005 levels. This plan will certainly see more coal-based power units going out of the production process. They will either be idled or converted to natural gas based units, affecting the long-term prospect of coal stocks.
Coal and its various byproducts also find use in the industrial sector, underlying its manifold advantages. However, unchecked usage of this fossil fuel has raised concerns in all quarters. The primary cause of concern related to coal is global warming caused by the emission of greenhouse gases.
Zacks Industry Rank: Negative Outlook
The Zacks Industry Rank, which relies on the same estimate revisions methodology that drives the Zacks Rank for stocks, currently puts the coal industry at 172 out of 258 industries in our expanded industry classification. This puts the industry in the lower third of all industries, corresponding to a negative outlook.
The way to look at the complete list of 258 industries is that the outlook for the top one-third of the list (Zacks Industry Rank of #85 and lower) is positive, the middle one-third of the list (Zacks Industry Rank of #86 to #169) is neutral while the outlook for the bottom one-third (Zacks Industry Rank #170 and higher) is negative.
Please note that the Zacks Rank for stocks, which is at the core of our Industry Outlook, has an impressive track record going back years, verified by outside auditors, to foretell stock prices, particularly over the short term (1 to 3 months).
Of the 21 coal companies presently in our coverage, only one Cloud Peak Energy Inc. ( CLD ) has a Zacks Rank #2 (Buy), 17 have a Zacks Rank #3 (Hold), and 2 are relegated to a Zacks Rank #4 (Sell) while one firm Alliance Holdings GP, L.P. ( AHGP ) has a Zacks Rank #5 (Strong Sell).
Earnings Review and Outlook
The coal industry's overall earnings results in the third quarter of 2015 were on the softer side with the majority of them reporting in the red and nearly 70% of the companies in our coverage posting a negative earnings surprise.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.