Peabody Energy Corp. (BTU) will release its first quarter 2013 financial results before the market bell on Apr 18, 2013. In the prior quarter, this coal operator reported a negative earnings surprise of 530.77%. Peabody currently has a Zacks Rank #3 (Hold). Let’s see how things are shaping up at Peabody prior to this announcement.
Factors to Consider This Quarter
The soft performance of the coal industry in 2012 is expected to linger in the first quarter of 2013 and demand for coal is likely to pick up in the subsequent quarters with the expected increase in natural gas prices.
Slackness in coal demand has prompted Peabody to lower its capital expenditure for 2013 by nearly 50% from the 2012 level to a range of $450 million to $550 million. This cut down in a way signifies that the company will have to delay or defer some of its growth projects.
In 2012, Peabody decided to permanently shut down its Air Quality mine in Vincennes, Ind., due to a drop in domestic demand and prices. The tepid demand for coal was making the operation of this mine uneconomical.
However, there is some good news for the coal industry. The World Steel Association projected 3.2% year-over-year growth in global steel production in 2013. Positive steel fundamentals can drive the demand for Peabody’s premium variety of coal. However, the company will have to face stiff competition from domestic and international coal producers to grab a share of the pie.
Accordingly, our proven model does not conclusively show that Peabody Energy is likely to beat earnings this quarter. That is because a stock needs to have both a positive earnings Expected Surprise Prediction (ESP) (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here.
Negative Zacks ESP: This is because the Most Accurate estimate stands at a loss of 20 cents while the Zacks Consensus Estimate has a narrower loss of 14 cents, resulting in -42.86% ESP.
Zacks Rank #3 (Hold): Peabody’s Zacks Rank #3 complicates the forecasting power making surprise prediction difficult. Peabody registered a negative earnings surprise in the last quarter. We caution investors against the stock going into the earnings announcement.
Other Stocks to Consider
Here are some other companies tied to the coal industry worth considering on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:
CONSOL Energy Inc. (CNX) has earnings ESP of +5.56% and carries a Zacks Rank #3 (Hold).
Alpha Natural Resources Inc. (ANR) has earnings ESP of +6.78% and carries a Zacks Rank #3 (Hold).
American Electric Power Company Inc. (AEP) has earnings ESP of +3.70% and carries a Zacks Rank #3 (Hold).
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