NEW YORK (TheStreet) -- Shares of Peabody Energy Corp. (BTU - Get Report) slumped 1.89% to $6.23 in morning trading today as Jefferies downgraded the coal company to "hold" from "buy" and cut its price target to $6 from $10.

"We remain concerned about domestic thermal coal fundamentals due to low natural gas prices, weakening exports, MATS related coal plant closures and increased renewable capacity," analysts said.

The Australian coal business is more likely to improve in the near-term due to higher seaborne thermal coal prices, analysts noted, but Peabody's Australian operating costs have not declined nearly as much as competitors due to its extensive hedging program, they added.

The company's highly levered balance sheet remains a concern for Jefferies. Cash outflows for Powder River Basin reserve payments and health benefit trust payments make it further unlikely the balance sheet improves this year or next, analysts concluded.

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 multiple 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, 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 61.60%, 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 (-$1.11 versus -$2.83).
  • You can view the full analysis from the report here: BTU Ratings Report