Peabody Energy Running Out of Juice

NEW YORK ( The Street) -- With mixed results already in hand from Alpha Natural Resources ( ANR) and Cloud Peak Energy ( CLD), the Street wasn't expecting a dominant performance from Peabody Energy ( BTU), 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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