NEW YORK (TheStreet) -- Peabody Energy (BTU) - Get Peabody Energy Corporation Report stock is decreasing by 2.52% to $1.16 in afternoon trading on Wednesday, after coal futures dropped following Goldman Sachs' bearish outlook.
Coal futures hit $50 a metric ton for the first time in 12 years after Goldman Sachs said coal will never recover, Reuters reports.
Coal peaked at more than $200 per metric ton in 2008 and has fallen 77% since then, compared with a 69% decline in oil prices.
"Peak coal is coming sooner than expected," Goldman Sachs said in an analyst note, Reuters added. "The industry does not require new investment given the ability of existing assets to satisfy flat demand, so prices will remain under pressure as the deflationary cycle continues."
Goldman Sachs lowered its long-term forecast for Australian thermal coal to $50 per metric ton from $65 per metric ton.
Coal began to struggle when developed countries turned to natural gas and renewable energy sources. The downfall continued this year as China reduced imports due to an economic slowdown, Reuters noted.
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 several 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 deteriorating net income, generally high debt management risk, disappointing return on equity, weak operating cash flow and generally disappointing historical performance in the stock itself. "
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 1326.1% when compared to the same quarter one year ago, falling from -$73.30 million to -$1,045.30 million.
- The debt-to-equity ratio is very high at 3.81 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, BTU has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. 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.
- Net operating cash flow has significantly decreased to -$59.80 million or 382.07% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 90.07%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 1225.00% compared to the year-earlier 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.
- You can view the full analysis from the report here: BTU