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Will Coal Stock, Peabody Energy, Keep Outperforming the Market in 2022?

Coal mining company Peabody Energy (BTU) saw its shares shoot up year-to-date, driven by skyrocketing coal prices amid the Russia-Ukraine conflict and many nations planning to ban coal imports from Russia. Given that the demand for coal continues to rise due to surging electricity consumption and a natural gas shortage, can the coal producer continue to maintain its momentum? Let’s discuss.

Leading pure-play coal company Peabody Energy (BTU) is engaged in the mining, selling, and distributing of coal in the United States, Japan, Taiwan, and internationally. BTU’s shares rallied 101.6% over the past three months and 124.8% year-to-date, thanks to a sharp uptick in coal prices over the Russia-Ukraine war. As fears of sanctions on Russian coal supply have led more countries to seek alternatives to Russian fossil fuels, the demand for coal from U.S. producers has surged significantly. In the first quarter of 2022, the coal mine operator’s seaborne thermal segment shipment rose 24% in average realized price compared to the prior quarter.

Additionally, BTU’s strategic joint venture to develop solar PV and battery storage capacity over the next five years could help it capitalize on the growing demand for renewable solutions. As the world continues to clamor for coal amid a global energy crunch due to the rising global electricity consumption, the leading coal producer is poised to benefit.

Here’s what could shape BTU’s performance in the coming months:

Bullish Analyst Sentiment

Analysts expect BTU’s EPS to increase 1,078.6% year-over-year to $2.74 in the current quarter ending June 2022. Its consensus EPS estimate of $2.06 indicates a 642.1% increase next quarter ending September 2022. Moreover, its EPS is estimated to increase by 143.2% in the current year.

The consensus revenue estimate of $1.13 billion for the next quarter indicates a 25.3% improvement year-over-year. Also, its revenue is estimated to increase 38.8% year-over-year to $4.6 billion in fiscal 2022.

Surging Coal Price

Amid a shortage of natural gas and rising electricity consumption, demand for coal has been on the rise since last year. Now with the Russian invasion of Ukraine, the global coal market has received a significant boost leading to soaring global coal prices. Moreover, the European Union’s proposal to ban coal imports from Russia from August could result in a substantial jump in demand for coal from the U.S. coal producers like BTU.

Discounted Valuation

In terms of forward EV/Sales, BTU is currently trading at 0.76x, which is 62.3% lower than the industry average of 2.01x. Its forward Price/Sales ratio of 0.64x is 54.4% lower than the industry average of 1.39. Also, BTU’s forward EV/EBITDA ratio of 1.77x is 73.9% lower than the industry average of 6.8x. Moreover, the company’s forward Price/Cash Flow ratio of 1.80x compares favorably with the industry average of 4.86x.

Strong Financials

BTU’s revenue grew 6.2% year-over-year to $691.4 million in the first quarter ended March 31, 2022. Its adjusted EBITDA under the Seaborne Metallurgical segment increased 6.7% sequentially to $181 million, while its adjusted EBITDA margin came in at 56%. The company’s cash and cash equivalents came in at $848 million compared to $623.7 million in the first quarter of 2021. Also, its net cash provided by investing activities amounted to $35.2 million over this period.

The coal producer’s trailing-12-month net income margin of 9.6% is 44.5% higher than the industry average of 6.6%. Also, the company’s trailing-12-month ROA and ROE of 6.5% and 22% compare favorably with the respective industry averages. Furthermore, its trailing-12-month asset turnover ratio of 0.7% is 45.5% higher than the industry average of 0.5%.

POWR Ratings Reflect Promising Outlook

BTU has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. BTU has a Growth grade of A, consistent with analysts’ expectation that its revenue and earnings will grow.

Also, in terms of Momentum grade, BTU has an A. The stock’s price return year-to-date is in sync with this grade.

Additionally, it has a B grade for Value. This justifies the company’s lower-than-industry valuation multiples.

Click here to see the additional POWR Ratings for BTU (Stability, Sentiment, and Quality).

The stock is ranked #6 of 11 stocks in the A-rated Coal industry.

Bottom Line

Amid geopolitical tensions surrounding the Russia-Ukraine war and an increasing number of nations planning to impose sanctions on Russia to ban coal imports, coal prices are hitting record-high prices. This could be a boon for the leading U.S. coal producer, BTU. In addition, as tight supplies and rising electricity consumption are expected to keep pushing coal prices higher, BTU is well-positioned to gain significantly. So, it could be wise to bet on the stock now.

How Does Peabody Energy Corporation Stack Up Against its Peers? 

BTU has an overall B rating in our proprietary rating system. Check out this other stock within the Coal industry with an A (Strong Buy) rating: Yanzhou Coal Mining Company Limited (YZCAY).

BTU shares were trading at $21.92 per share on Monday morning, down $0.72 (-3.18%). Year-to-date, BTU has gained 117.68%, versus a -13.46% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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