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Is Peabody An Ideal Buy Or A Definite Sell?

Updated on February 19, 2014

Because of the performance of coal mining industry during the previous years, many doubt that Peabody Energy Corporation (BTU) is still a good investment. While it is true that the statistics can speak of itself, there are many reasons that investors should think twice before looking the other way.

Reasons of doubting Peabody Energy

Looking at the coal mining industry as whole, it might not be in its best shape for now. The revenue of Peabody and BTU stock price decreased while still struggling to keep itself afloat in the fourth quarter of 2013. There are different reasons that might have contributed to this situation.

Environmental policies, safety, and its effect on demand

First and foremost, the demand of BTU stock in the global market decreased. In China, there is a growing concern on the environmental impact of coal. Many people can attest to the growing pollution in China, especially in its capital, Beijing. For this reason, more and more people are calling for the country to seek alternative source of electricity aside from coal thermal plant. According to one of the BTU stock news, this situation is almost the same with other countries. The United States expresses concern about its carbon footprint. Other developed countries made a commitment to sustainable and eco-friendly energy source and coal is not part of the agenda.

In addition to this, the economy of China slowed down, according to BTU stock analysis. Since the remarkable economic progress of China, it increases its need for more power and raw materials to sustain its growth. However, in the fourth quarter of 2013, China’s economic growth slowed down. This has led to less demand for steel and coal. In steel production industry, coal is needed to heat steel. However, because there is less demand of steel, there is also less demand in coal, as suggested by Peabody Energy Corporation stock analysis.

Another reason that the BTU stock price for coal decreases is the lower price of Natural gas. Both coal and natural gas can be used as a source of energy. But for the most part, coal has been cheaper and thus, coal has been more preferred because of economic reason. Nevertheless, the price for natural gas has been decreased. Since natural gas is more eco-friendly and even more efficient, coal is now less preferred.

Finally, many utility companies have enough supply of coal. Before these companies will order for more coal, it plans to exhaust the stored coal first leading to decreased BTU earnings.

Peabody Energy will make a comeback

The scenario mentioned above happened last year, 2013. However, with the new fiscal year commencing, there are high hopes for the improvement of Peabody Energy Corporation stock.

There are different reasons that investing in Peabody Energy can be a great choice. For one, the growing demand for coal around the world will increase as a result of various factors. In the United States, the price of natural gas is increasing. This is definitely true today because of the high demand for natural gas. According to BTU estimates, this will force other companies to use coal as means to cut operational costs.

The European continent is also coming back from the financial crisis it went through. As a result, the economy of European countries will thrive and this economic prosperity will definitely need more energy source to sustain, which will in turn improve Peabody Energy Corporation stock price.

Though China’s economy has been sluggish for the latter half of 2013, it will again pick up on a faster pace, according to BTU stock news. There are different reasons that the demand for coal in China will increase in 2014.

China’s coal production

First of all, China is having a tough time in dealing with its domestic coal production, according to Peabody Energy Corporation stock analysis. According to the news, China lost about 1,300 lives because of inferior mining practices. Because of this, China is aiming to close approximately 5,000 mining areas within its territories. In addition to this, China’s environmental policy is seeking for more refined and higher grade of coal. As of now, based on Peabody Energy Corporation stock news, Indonesia supplies China with a good amount of coal. However, the coals coming from Indonesia does not meet the standards of China’s environmental policy. All this will lead to lower supply of coal for the country. China will not have other option, but to import coals from major coal mining companies such as Peabody Energy Corporation stock. As a matter of fact, China has already made an agreement and signed a contract with Peabody Energy to make sure sufficient supply of coal will be delivered.

Increase in coal demand forecasted

Though most developed country would seek other means of producing its electricity, there is no doubt that most developing countries would still like to have cheaper ways to produce its power. The developing countries do not have the affluence to seek for other alternative power source. This means that more and more developing countries will still have to settle with coal thermal power plant. China, India, Philippines, and other Asian countries are predicted to have increased demand for coal.

Finally, the demand for steel will increase in 2014 by 5%. The global need for steel will also affect the need for coal. Just like what was mentioned earlier, coal is needed to develop steel. With growing demand for steel, the demand for coal will also increase, thereby improving Peabody Energy Corporation stock.

Peabody, on top of the competition

At this point in time, it is worth noting that BTU stock is the fastest growing coal mining company in the world. Though it is already the largest international company of its kind, it continues to dominate the market. Even in the midst of incredible pressures being put into the industry in 2012, Peabody still managed to perform impressively delivering positive safety results, improved Peabody Energy Corporation stock price, increased revenues, enhanced Australian operation, and good EBITDA performance. During the past years, Peabody was able to expand its market and extend it service to more countries.

Peabody is the leading company when it comes to providing affordable coal supply. With the US and Australian mining areas, the company is positioned in a very unique position to provide the best results and increase its BTU earnings. Peabody is also known for having the largest coal reserves in the world.

In 2011, according to Peabody Energy Corporation stock news, Peabody made a great stride in its performance. It has attained $7.97 billion revenue. Its operating income reached $1.59 billion. All these are a result of the commitment of the company to create value to its shareholders.

Various achievement of Peabody

There a lot of notable achievements made by Peabody Energy Corporation. For example, Peabody was able to maintain health and safety in its many mining areas. The record of Peabody’s safety is 46% better than the overall average record safety of the industry. The company’s revenue in 2013 is $7 billion, which is something to celebrate about considering how much the revenues of other competing company fell. The EBITDA of Peabody for 2013 is $1.05 billion. Through the wise expenditure of the company, Peabody was able to save $340 million from its operation cost. This means that Peabody made a 67 percent decrease in its capital investment.

According to BTU stock analysis, the Australian operation made a record sale. Through better mining techniques, Peabody was able to sell around 35 million tons of coal products while selling metallurgical coal went up to almost 16 million tons. Moreover, the company was able to decrease its debt by $200 million because of the generated operating cash flow amounting to $722 million leading to enhanced Peabody Energy Corporation stock price. The company also showcases its newly created contract with international market such as what it made with Shenhua of China. The contract aims to import coals for thermal power plants. Finally, it should be noted that Peabody Energy Corporation was awarded for many accomplishments such as community involvement, mine recognition, land restoration, safety, and corporate excellence.

The future of Peabody

In 2012, BTU made a historic development in its history. The company bought the Macarthur Coal in Queensland, Australia. Before the acquisition, Peabody is not so much of an international player in coal mining; however, the Macarthur Coal opened a floodgate of opportunities for Peabody. Since that time, Peabody rose to be the largest coal mining company, not only in the United States, but also in the world.

Buying Peabody stocks today is proven to be the best step, based on Peabody Energy Corporation stock news. The company is in unique advantageous position. If ever there will be an improvement in the world economy, Peabody will have the lion’s share of the revenue and exponentially increase its BTU earnings. Thus, investing to other related companies will not be a wise choice. The new stock price is anywhere near $19 per share. This is quite low if an investor tries to compare how much his or her share will increase in the following months or years. According to Peabody Energy Corporation stock analysis, the company has 1.8% growth rate in dividend per annum.

With all these being said, investors should be able to see how easy it is for their money to grow with BTU estimates. However, the future is really not ours to see, so there are risks involved in every investment decision that an investor has to take.

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