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Peabody upgraded to 'Buy' from 'Neutral'

NEW YORK (AP) -- Peabody Energy Corp. shares increased 5 percent Tuesday after a Goldman Sachs analyst upgraded the company on an expected rebound in coal prices and stronger demand in China.

Analyst Andre Benjamin raised the rating on Peabody, the world's biggest private-sector coal company, to "Buy" from "Neutral." Benjamin expects earnings-per-share at the St. Louis, Mo., company to rise from an estimated $2.57 in 2012 to $3.05 in 2013 and $3.79 in 2014.

Benjamin said thermal coal prices should "gradually improve" in the second half of 2012 following production cuts and a rise in the price of natural gas, which utilities can use as an alternative energy source. Benjamin said that the recovery in coal prices will only be temporary, however, as American power plants increasingly switch to natural gas.

But Peabody is still expected to generate higher profits in coming years thanks to increased demand and prices in China. Peabody, which has operations in Australia, is a key supplier of metallurgical coal for steel manufacturers in Asia.

Shares increased $1.35, or 5.7 percent, to $25.23 in late morning trading. Shares are still down for the year, however, trading about 36 percent below their peak of $38.90 on Feb. 6.