Is It Too Late to Get in on Peabody Energy?

Coal mining company Peabody Energy (BTU) has gained more than 120% this year due to the resurgence of coal consumption. Is it too late to get in on the stock now? Read on to find out…

Peabody Energy Corporation (BTU) engages in the coal mining business in several countries. The company operates through the Seaborne Thermal Mining; Seaborne Metallurgical Mining; Powder River Basin Mining; and Other U.S. Thermal Mining segments.

Countries were starting to move away from the consumption of coal to curb environmental degradation. However, coal consumption bounced back strongly in 2021, growing by 6.3%. In non-OECD nations, consumption hit a record. In the United States, coal was starting to get phased out. However, 2021 saw an uptick in U.S. coal consumption and production.

Amid heightened demand, BTU’s stock has gained 22% over the past year and 123.9% year-to-date to close its last trading session at $22.55. It has gained 17.3% over the past month.

Here are the factors that could affect BTU’s performance in the near term:

Solid Bottom-line Growth

For the fiscal quarter that ended June 30, BTU’s revenue increased 82.7% year-over-year to $1.32 billion. Net income attributable to common stockholders and EPS rose 1,531.8% and 1,007.1% from the prior-year quarter to $409.50 million and $2.54. Adjusted EBITDA improved 373.2% from the same period the prior year to $577.80 million.

Low Valuations

In terms of its forward EV/Sales, BTU is trading at 0.73x, 60.7% lower than the industry average of 1.86x. The stock’s forward EV/EBITDA multiple of 1.90 is 65.1% lower than the industry average of 5.43. In terms of its forward Price/Sales, BTU is trading at 0.69x, 49.4% lower than the industry average of 1.36x.

Wide Profit Margins

BTU’s trailing-12-month EBIT margin and net income margin of 17.20% and 19.18% are 18.3% and 101% higher than their respective industry averages of 14.54% and 9.54%.

Its trailing-12-month ROE, ROTC, and ROA of 46.55%, 14.70%, and 14.32% are 199.9%, 117.4%, and 147.4% higher than their respective industry averages of 15.53%, 6.76%, and 5.79%.

POWR Ratings Reflect Promising Prospects

BTU’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

BTU has a Growth grade of B in sync with its strong bottom-line growth in the last reported quarter. The stock also has a B grade for Value and Quality, consistent with its cheap valuations and broad profitability margins.

In the 11-stock Coal industry, it is ranked #7. The industry is rated A. Click here to see the additional POWR Ratings for BTU (Momentum, Stability, and Sentiment).

View all the top stocks in the Coal industry here.

Bottom Line

The coal market has witnessed a rebound lately, which seems to be favoring BTU’s stock. Moreover, the company registered strong bottom-line growth in the last reported quarter. Wall Street analysts expect the stock to gain 36% in the near term. Hence, I think the stock might be a solid buy now.

How Does Peabody Energy Corporation (BTU) Stack Up Against its Peers?

While BTU has an overall POWR Rating of B, one might consider looking at its industry peers, Alpha Metallurgical Resources, Inc. (AMR) and Warrior Met Coal, Inc. (HCC), which also have an overall B (Buy) rating.

BTU shares were trading at $22.91 per share on Friday morning, up $0.36 (+1.60%). Year-to-date, BTU has gained 127.51%, versus a -14.13% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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