William Shakespeare expertly inserted a play into his play in Hamlet, permitting layers of drama to unfold onstage in unison.
While a coal company can hardly be expected to rival Shakespeare's eloquence, Peabody Energy
Wall Street, too, has an undeniable flair for drama. Peabody's earnings and additional production cuts displeased the analysts, so the market promptly removed 9% of the company's value upon the market opening Wednesday. A 200% increase in earnings provided no appeasement, nor did the doubling of cash flow to $220 million atop a 15% rise in revenue.
The additional production cuts are both modest in scale and entirely prudent. For context, consider that Peabody shares are now languishing more than 70% below their peak 2008 levels, while benchmark prices for both thermal and metallurgical coal are poised for settlement at levels above the historical mean. Following earnings growth rates in recent quarters between 700% and 1,000%, I can understand why analysts aimed high with projections for Peabody's earnings, but I believe that Fools and analysts alike need to sit through the play once more to decide whether the sell-off was warranted.
The play within the play
The dichotomy of coal demand shaping up between Asia and the U.S. continues to gather steam, and corroborating evidence for this predicted trend is Peabody's play within the play. Among steelmakers, we find scrappy stalwarts like Nucor
With a foot in China's door, and spare domestic capacity awaiting the long-term impacts of underinvestment in future supply, Peabody Energy is far more stable than Hamlet ever was.