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Things Are Not Looking Up For Peabody Energy

Updated on February 19, 2014

The Peabody Energy Corporation is one of the S&P 500 components and is being traded in the New York Stock Exchange (NYSE) as BTU. The company is also known as the biggest company of its kind worldwide with its primary industry focused on metals and mining, though it is also involved in selling and distributing of coal. The coals mined by the company are primarily used for generating electricity and for steel production. As the largest coal mining company, Peabody Energy does not limit its market to the US, but also to other countries such as Australia, china, Germany, Indonesia, Singapore, and United Kingdom to improve its BTU earnings. Peabody Energy is responsible for the 10% of the United States’ electricity generation. In addition to this, the company contributes to 2% of the world’s generation of electricity.

Earnings of Peabody

The Peabody Energy Corporation stock is very impressive. Peabody Energy is founded in Chicago, Illinois, in 1883, but it is now headquartered in St. Louis Missouri, USA. According to one of the Peabody Energy Corporation stock news, in 2011, the company claimed to have $7.97 billion revenue and an operating income of $1.59 billion. It also has a net income of $946 billion; total assets of $16.73 billion; and total equity of $5.52 billion. Globally, it has around 8,300 employees. All these contribute to Peabody Energy Corporation stock price.

Operations

There are about 28 mining areas that Peabody Energy owns, all of which contribute to BTU stock. These mining areas are chiefly located in the United States and Australia. In the United States, the company has mining area in Colorado, Wyoming, Illinois, New Mexico, and Indiana. According to BTU stock news, the company has its largest operation in the North Antelope Rochelle Mine. In 2011, Peabody Energy acquired the Macarthur Coal Ltd in Queensland, which opens the door for the company to enter the market for metallurgical coal.

There are a lot of reasons that investors should choose BTU. To date, the Alpha Natural Resources and Walter Energy are the two primary competitors of Peabody Energy. However, with the current situation and financial instability, Peabody Energy serves to be the best bet for investors.

Contract signed with China

According to BTU stock analysis, there is a growing expectation that more and more investors will migrate to Peabody Energy as the stock of the company will improve. Developments are made and projects are being planned that will improve the performance of BTU estimates. For example, China just recently signed a deal with Peabody Energy, which enables the company to supply coal for thermal plants around the country. It was the Shenhua Group that signed the contract with Peabody Energy. As stated in Peabody Energy Corporation stock analysis, there are two possibilities where coal supply will be coming from. Peabody Energy is planning to export coal from the Australia or from the United States itself.

The said contract was signed in December 2013. This has led to the immediate increase of BTU stock price by $19.50. However, at the start of 2014, the stock price of the company went down by 8% or $17. There had been great debate on what led to this decrease.

What lead to the decreased stock price?

There are some analysis and studies that were formulated to explain the situation and how the situation can affect BTU earnings. In its purest sense, Peabody Energy is not into International operation. As a matter of fact, it wants to concentrate its operation in the countries where it gets its coal – Australia and United States. Thus, the contract signed by China is the primary international exposure of the company to the market, based on Peabody Energy Corporation stock analysis. Actually, China is a self-sufficient country when it comes to coal. However, there are certain types of coal that China cannot reproduce.

For the last few months, the demand for steel in china has declined as much as by 7% which had its toll on Peabody Energy Corporation stock. This has also led to the decrease of demand for coal, which is used as well for steel production. In addition to this, the price for steel is falling, thus it dragged the price of coal as well along with it. The coal’s price has dropped to $134 from $152. However, the demand of steel is only true to China, but not in the global scale as other developing countries continue to be voracious for steel, which can enhance Peabody Energy Corporation stock price.

Because of the decline of coal price in China, the BTU stock price of coal would be depreciated. With decrease demand, the mining industry of Australia and United States will surely hurt. Thankfully, other types of coal are still in demand in China to maintain the operation of most thermal power plants, as seen in BTU stock analysis report.

Improved performance forecast

Analysts say that the decrease in demand for steel and coal is only temporary, according to Peabody Energy Corporation stock news. China is just taking a break from its impressive economic run and the improvement of its economy will continue in the second quarter of 2014. Therefore, Peabody is in a very unique position in improving its BTU stock, which is very advantageous to acquire most of the benefits when the demand for steel and coal will come back.

For investors looking for good deals, Peabody Energy is a good choice among the mining companies. For example, ANR and WLT had a negative EPS, which is unattractive for investors. When one tries to look at the performance of BTU estimates and what it can become during the rest of the year, it is very evident that the company is the most feasible investment to make at this point in time.

Future outlook for Peabody

Of course, one cannot deny the fact that the United States and other first world countries are seeking for greener and cleaner energy alternatives as mentioned in BTU stock news. United States, for example, is making a point to avoid using dirty coal that can negatively impact the environment. Nevertheless, Asian countries are far from that commitment as most countries in that region are looking for cheap ways to generate electricity to sustain its economic growth. In addition to this, the rising price of alternative fuels is unbearable for developing countries. All these will lead to steady growth of the industry and Peabody Energy Corporation for many years to come.

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