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TheStreet Open House

Why Peabody Energy (BTU) Is Gaining on Friday

Stocks in this article: BTU

NEW YORK (TheStreet) -- Peabody Energy Corporation (BTU) is climbing on Friday after receiving a ratings upgrade. Peabody was upgraded to "outperform" from "market perform" with its price target lifted to $20 from $19, Cowen said.

The investment firm said it expects Peabody to endure current metallurgical coal pricing trends while generating over $1 billion in EDBITDA over 2015.

By late afternoon, the stock had added 2.8% to $17.20. Trading volume of 10.5 million had exceeded its three-month daily average of 6.3 million.

Must Read: Warren Buffett's 10 Favorite Growth Stocks

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Separately, TheStreet Ratings team rates PEABODY ENERGY CORP as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate PEABODY ENERGY CORP (BTU) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Currently the debt-to-equity ratio of 1.54 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. To add to this, BTU has a quick ratio of 0.57, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
  • The gross profit margin for PEABODY ENERGY CORP is rather low; currently it is at 15.23%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -32.45% is significantly below that of the industry average.
  • Net operating cash flow has decreased to $178.40 million or 20.21% when compared to the same quarter last year. Despite a decrease in cash flow of 20.21%, PEABODY ENERGY CORP is in line with the industry average cash flow growth rate of -23.15%.
  • BTU's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 25.03%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PEABODY ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: BTU Ratings Report
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