Peabody Energy (BTU)
is a power player in a beleaguered sector, as falling power demand and rising supply conspire to cause plummeting coal prices worldwide. Analysts, however, believe coal stocks could be well into oversold territory, making the better-managed operations potential buy targets.
Peabody Energy own interests in 30 coal mining operations, including a majority interest in 29 coal operations located in the United States and Australia and a 50 percent equity interest in the Middlemount Mine in Australia. It also owns an equity interest in a joint-venture mining operation in Venezuela. In addition to mining operations, the company markets, brokers and trades coal through a trading and brokerage segment.
Among recent M&A moves, the company in 2007 spun off Patriot Coal (PCX)
through a dividend of all outstanding shares, which included mines in West Virginia and Kentucky; and in 2011 acquired Macarthur, an independent coal company in Australia, which included two operating mines, a 50 percent equity-affiliate joint venture arrangement and several development projects, along with coal reserves of approximately 213 million tons, approximately 142 million tons on an attributable basis.
“In 2011, we continued advancing multiple organic growth projects in Australia and the U.S. that involved future mines, as well as the expansion and extension of existing mines,” the company said in a recent report. In 2012 and the near term, the company said, plans are for mining operations to include further investments in organic growth projects.
“Including trading and brokerage, Peabody's total 2012 sales are expected to be in the 235 to 255 million-ton range. For the second quarter, we are targeting EBITDA of $450 million to $550 million and adjusted diluted EPS of 40 cents to 65 cents,” CFO Michael Crews told analysts in a recent call.
“The ranges reflect Australian benchmark pricing per metric ton of $210 for high-quality hard coking coal, $153 for low-vol PCI coal and $115 for Australian export thermal coal, as well as expected reductions in U.S. volumes.”
Peabody Energy has a market cap of $6.77 billion in a sector, oil, gas and consumable fuels, where the average company size is $45.95 billion. Its trailing 12-month P/E ratio is 6.74 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.66, compared to 1.25 for the sector.
Its projected earnings per share growth for the coming year is 31.18 percent, compared to a sector average of 15.94 percent.
Wall Street is generally positive on BTU, with buy or outperform calls from Merrill Lynch, Citigroup Investment Research, Deutsche Bank, JP Morgan, Stifel Nicolaus, Goldman Sachs, Raymond James, and Jefferies.
Zacks Investment Research is neutral on the stock. “The acquisition of Macarthur Coal has strengthened its Australian platform and will enable it to cater to the growing demand in the Asia-Pacific region,” Zacks analysts wrote in mid-June.
“However, the future growth of Peabody is tied to timely completion of many projects that are lined up in the U.S. and Australia. The uncertainty of the completion of these projects, mild weather lowering electricity demand and increasing competition from natural gas producers raise concern. Hence, we maintain our neutral rating.”
Peabody Energy next reports on July 17.
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