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Can Peabody Energy Exploit Rising Asian Coal Demand?

On Nov 20, we issued an updated research report on Peabody Energy Corp. (BTU). Peabody expects an improvement in thermal coal demand on a global scale as the developing Asian countries add more coal-fired plants. However, rising regulatory pressure to reduce emission could lower the prospects of thermal coal in the U.S.

Peabody Energy incurred a loss of 59 cents per share in the third quarter of 2014, narrower than the Zacks Consensus Estimate of a loss of 66 cents. The company’s revenues of $1.72 billion declined 4.1% year over year but surpassed the Zacks Consensus Estimate of $1.64 billion by 4.9%. The decline in sales volume in the reported quarter and lower realized prices of Australian tons sold led to the shortfall.

Even if coal is gradually losing ground to other sources of fuel, it still holds an important position in electricity production worldwide. The U.S. Energy Information Administration (EIA) suggests that U.S. coal production will continue to increase by an average of 0.3% per year from 20.6 quadrillion Btu in 2012 to 22.6 quadrillion Btu in 2040. Peabody Energy with a presence in the Powder River Basin (PRB) and Illinois Basin is expected to benefit from any revival in coal demand.

Peabody Energy’s presence in Australia provides it with a platform to cater to Asian demand. China is a major importer of both varieties of coal. However, the country has reintroduced tariffs on coal imports to safeguard the interest of domestic coal producers. China imposed a 6% tariff on thermal coal imports and a 3 % tariff on coking coal. This might impact U.S. coal exporters like Peabody.

India is expected to import large volumes of coal to feed its thermal coal units. This might open up a new export window for Peabody’s thermal coal.

Peabody Energy currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the space include SunCoke Energy (SXC), Natural Resource Partners LP (NRP) and Hallador Energy Co. (HNRG). SunCoke Energy sports a Zacks Rank #1 (Strong Buy) while Natural Resource Partners and Hallador Energy currently have a Zacks Rank #2 (Buy).

Read the Full Research Report on BTU
Read the Full Research Report on NRP
Read the Full Research Report on SXC
Read the Full Research Report on HNRG


Zacks Investment Research