Peabody Energy’s recent weak performance in the stock market has remained poor due to difficult coal market conditions. Lower natural gas prices, strict regulations and weak global economic conditions have taken a toll on the coal market. In the current business environment, coal companies have been cutting their costs to support earnings.
However, some market analysts suggest that Peabody Energy’s large operational scale and management strength position the company well to benefit from a coal market rebound in the future.
Further, analysts at Seeking Alpha have said that Peabody’s current valuations remain depressed, consistent with the current industry environment, which makes it an attractive investment for long-term investors willing to play a coal market rebound.
Some market data suggests that the US thermal coal market could begin to improve in upcoming quarters, as utility coal stockpiles at electricity power producers have dropped to their lowest levels since March 2006.In March 2014, coal stockpiles dropped to 118 million t, down 24% since November 2013.
This lowering of coal stockpiles could also coincide with a rise in natural gas prices, which – when coupled with Peabody’s efforts to curb costs – will benefit stock prices.
Despite Goldman Sachs downgrading shares in Peabody Energy from “buy” to “neutral”, therefore, it seems the leading US coal company could still prove a good bet for prospective investors.
Edited from various sources by Sam Dodson