NEW YORK (TheStreet) -- Shares of Peabody Energy (BTU - Get Report) fell to a 52-week low of $5.47 on Friday after Bank of America/Merrill Lynch downgraded the stock to "underperform" from "neutral" and cut its price target to $5 from $7.
The firm cited the company's reduced thermal coal outlook as the reason for the downgrade. Bank of America/Merrill Lynch also cited the high level of inventories and falling thermal coal imports, which the firm believes are indicative of signs of weaker fundamentals in China.
Peabody Energy is the world's largest private-sector coal company. The company's business mainly focuses on the mining, sale, and distribution of coal, used for generation of electricity and making steel.
Coal prices have suffered amid a global oversupply. Mining companies have cut approximately 15 million tons of production capacity for coal used to make steel in the last year and have detailed plans to double those cuts in the near future, according to Bloomberg.
Insight from TheStreet's Research Team:
In the world of bottom-fishing stocks, few names have hurt traders worse than those in the coal and iron-ore sectors. I received several questions regarding Peabody Energy and Cliffs Natural Resources (CLF) on Thursday, and while I tried to keep open mind, I just can't find a single reason to buy either stock. It doesn't matter whether you're looking at BTU, Alpha Natural Resources (ANR), Cloud Peak Energy (CLD), or Walter Energy (WLT). From a technical perspective, they're all pretty much the same. Ugly! They should all be avoided. And as far as CLF is concerned, there's little to do there until iron ore futures begin to stabilize. For the record, iron ore futures were printing new multi-year lows on Wednesday. Like anything in the coal sector, CLF should be avoided.
- Bob Byrne, 'The Trader Daily' originally published on 3/13/2015 on RealMoney.com.
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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 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."
You can view the full analysis from the report here: BTU Ratings Report