NEW YORK (TheStreet) -- Shares of Peabody Energy (BTU - Get Report) are up 0.84 % to $7.18 in early afternoon trading Thursday despite Jefferies price target reduction to $10 from $15, while maintaining its "buy" rating.
Peabody Energy posted earnings of $2.27 per share for 2014. For 2015 and 2016, analysts estimate much lower earnings of $1.47 per share and 73 cents per share, respectively.
The private-sector coal company also reported lower-than-expected total revenue of $6.79 billion versus $6.92 billion estimates. Analysts lowered their 2015 fiscal year revenue estimates to $6.40 billion from $7.60 billion and estimated total revenue of $6.34 billion for 2016.
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Seaborne coal prices remain weak, analysts said. The current Newcastle first quarter coal price is $62/tonne, $13/tonne lower than the 2014 average. The spot premium low-vol had a coal price of $106/tonne, $7/tonne lower than the 2014 average. As a result, management believes that the met coal market could be in a deficit this year for the first time since 2011.
Although rails have shifted capacity to coal from oil because of lower oil prices, increasing Peabody's Powder River Basin (PRB) coal production, analysts are still concerned that PRB production could disappoint if natural gas prices remain weak.
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 number of negative factors, 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, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is very high at 2.20 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.47, which clearly demonstrates the inability to cover short-term cash 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.
- The gross profit margin for PEABODY ENERGY CORP is rather low; currently it is at 16.82%. Regardless of BTU's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, BTU's net profit margin of -30.54% significantly underperformed when compared to the industry average.
- Looking at the price performance of BTU's shares over the past 12 months, there is not much good news to report: the stock is down 52.09%, and it has underformed the S&P 500 Index. In addition, the company's earnings per share are lower today than 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.
- PEABODY ENERGY CORP's earnings per share declined by 17.8% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, PEABODY ENERGY CORP reported poor results of -$2.83 versus -$1.12 in the prior year. This year, the market expects an improvement in earnings (-$1.06 versus -$2.83).
- You can view the full analysis from the report here: BTU Ratings Report