NEW YORK ( The Street) -- With mixed results already in hand from Alpha Natural Resources (ANR - Get Report) and Cloud Peak Energy (CLD), the Street wasn't expecting a dominant performance from Peabody Energy (BTU - Get Report), which has long been considered the "coal standard" within an industry that has been ravaged by poor market conditions.
But with Peabody shares having gained as much as 33% over the past three months, investors have begun to appreciate that, despite all of the doom and gloom that surrounds the industry, there's value in this high-quality coal producer. This has now raised questions as to whether new investors are too late to the party. The way I see it, it's a good thing they were never invited.
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While I never believed that Peabody deserved the same treatment as Alpha Natural Resources, which has been down 65% over the past couple of years, it seems premature that the stock is now being priced as if a strong rebound in coal is imminent. While I do believe this industry has already seen the worst, I wouldn't chase this stock just yet. The "easy money" has already been made.
My valuation concerns aside, Peabody's third-quarter earnings results, which produced 13% year-over-year revenue decline, suggests that there may still be some above-average risk here. As with Cloud Peak Energy and Alpha Natural Resources, Peabody's revenue struggles were driven by weak coal prices. And this was even though the company posted a 4% increase in production from the previous year.Ordinarily, this is the part where I would praise management for "doing more with less." Growing production amid a brutal environment is not easy. However, with operating income falling close to 60% year over year, unlike Cloud Peak Energy, which revealed some positive signs in the quarter, Peabody failed to reveal any silver linings.
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