Is This Coal Industry Leader Strong Enough to Invest In?

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The coal industry has been beaten up by low natural gas prices and a tough regulatory environment over the last few years. With shares of Peabody Energy Corp. (NYSE:BTU) now trading around $25.38, is BTU a Buy, a Wait and See, or a Stay Away? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Technicals on the Stock Chart are Weak

As of November 13, the stock price is 3.85 percent below its 20-day simple moving average, or SMA; 5.64 percent above its 50-day SMA; and 1.5 percent below its 200-day SMA.

Since the beginning of 2012, the stock price has been in a downward trend, losing 30 percent of its value this year to date, and 36.3 percent year over year.Dirty Money

For comparison, Arch Coal Inc. (NYSE:ACI) has dropped 56.7 percent this year to date, while CONSOL Energy Inc. (NYSE:CNX) has dropped 17.3 percent this year to date.

Peabody Energy is trading in a 52-week range between $18.78 and $40.97.

E = Earnings are Increasing Quarter over Quarter

Both the company’s earnings and revenue have a positive trend over the past few years, despite the coal industry being slammed by cheap natural gas. When compared to other players in the industry, Peabody’s numbers look like the result of smart businesses in hard times. Neither Arch Coal nor CONSOL Energy can boast three consecutive years of earnings growth.

2007 2008 2009 2010 2011
Revenue ($) in millions 4,545 6,561 6,012 6,740 7,974
Diluted EPS ($) 0.98 3.52 1.68 2.85 3.52

 

Peabody issued full-year adjusted EPS guidance of $2.10 to $2.30 per share, while analysts are expecting about $2.00 per share on average.

At a glance it’s easy to see that Peabody had a comparatively weak third quarter, but strength is in the eye of the beholder. Revenues still increased, largely thanks to ongoing operations in Australia, the company’s second home. Australian revenues were up 20 percent.

Sept. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 June 30, 2012 Sept. 30, 2012
Revenue ($) in millions 2,036 2,186 2,039 1,998 2,059
Diluted EPS ($) 1.01 0.82 0.64 0.75 0.16

(EPS is non-adjusted, attributable to common shareholders.)

Analysts are expecting earnings of $0.28 per share for the current quarter.

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