NEW YORK (TheStreet) -- Peabody Energy (BTU) shares are up 4.1% to $19.43 on Monday after being upgraded to "overweight" from "equalweight" by analysts at Morgan Stanley (MS). The firm raised its price target by 50% to $30 from $20.
Analysts at the firm believe that met coal production cuts will stop the drop in coal prices, providing a bottom for the price free fall.
Further, analysts also believe that Peabody Energy has a lower downside risk when compared to peers in its industry.
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 unimpressive growth in net income, generally high debt management risk, poor profit margins 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 107.3% when compared to the same quarter one year ago, falling from -$23.40 million to -$48.50 million.
- The debt-to-equity ratio of 1.49 is relatively high when compared with the industry average, suggesting a need for better debt level management. To add to this, BTU has a quick ratio of 0.60, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- The gross profit margin for PEABODY ENERGY CORP is currently extremely low, coming in at 14.26%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -2.98% trails that of the industry average.
- The share price of PEABODY ENERGY CORP has not done very well: it is down 12.16% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. 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