NEW YORK (TheStreet) -- Shares of Peabody Energy Corp. (BTU - Get Report) are down by 7.32% to $5.89 in early afternoon trading on Thursday, after the Obama administration submitted a plan to change how it collects royalties on coal mined from federal land, in an effort to reduce the use of the fuel linked to climate change, Bloomberg reported on Wednesday afternoon.
The Interior Department says the accounting change is required to revise rules approved almost 30 years ago and streamline the program for companies such as Peabody Energy and Arch Coal Inc. (ACI).
"It's time for an honest and open conversation about modernizing the federal coal program," Interior Secretary Sally Jewell said last week in a speech to the Center for Strategic and International Studies, Bloomberg noted. "How do we manage the program in a way that is consistent with our climate-change objectives?"
The industry sees the changes to the way the government will collect royalties on coal as part of President Obama's "war on coal," Bloomberg added.
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, weak operating cash flow, poor profit margins and generally disappointing historical performance in the stock itself."
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.
- Net operating cash flow has significantly decreased to $86.50 million or 51.51% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- 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 63.54%, 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.
- You can view the full analysis from the report here: BTU Ratings Report