Peabody Energy Earnings: Will Coal Bounce Back?

On Thursday, Peabody Energy (NYSE: BTU  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Coal stocks have gotten crushed as natural-gas prices fell last year to their lowest levels in more than a decade. But recently, natural gas has started to recover, and that could spell relief for Peabody Energy and its coal industry peers. Let's take an early look at what's been happening with Peabody Energy over the past quarter and what we're likely to see in its quarterly report.

Stats on Peabody Energy

Analyst EPS Estimate

($0.15)

Year-Ago EPS

$0.67

Revenue Estimate

$1.78 billion

Change From Year-Ago Revenue

(12.7%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will Peabody Energy power up this quarter?
Analysts have gotten a lot less optimistic about Peabody's prospects at earnings time, having nearly doubled their loss estimate since January for the just-ended quarter and having slashed the consensus forecast for full-year 2013 earnings by more than half. As a result, the stock has remained under pressure, falling by more than 25% over the past three months.

2012 was a crushing year for Peabody and its peers, as coal demand plunged in favor of cheap natural gas. Many utility companies made the switch from coal to natural gas for power generation, taking away a key source of business for coal producers.

But a rebound in gas prices may be starting to reverse that trend. Earlier this month, Peabody made a deal with Duke Energy (NYSE: DUK  ) to sell 1.7 million-1.9 million tons of coal to the utility company. As natural gas tops the $4 mark, further shifts back could benefit Peabody, especially as it has a cost advantage over its rivals and therefore stands to profit quickest from price increases.

In addition, Peabody has capitalized on the growing demand for coal overseas, where environmental regulations aren't as stringent. In particular, India has ramped up its demand for coal, and Peabody's Australian coal reserves make it the logical choice to serve the emerging-market country. Meanwhile, a deal with Kinder Morgan Energy Partners (NYSE: KMP  ) has helped Peabody boost its ability to export coal efficiently and inexpensively. Peabody will face competition in the export market, as Arch Coal (NYSE: ACI  ) has set up long-term export contracts on the West Coast and Gulf of Mexico, and other players are seeking to cash in on overseas demand. But again, its low-cost advantage should give it an edge.

In Peabody's earnings report, be sure to watch for export numbers related to demand for metallurgical coal. As opposed to its thermal-coal business, Peabody's met-coal sales rely on the construction and infrastructure industries, both of which have come under macroeconomic pressure as China's growth slows down. Hints on that front could hold the key not just to Peabody's future success but the state of the global economy as well.

The coal industry in the United States has been in a state of flux since the arrival of a cheaper alternative for energy production: natural gas. Exports are becoming a much bigger part of the domestic coal landscape, and Peabody Energy has deals in place to get its cheaper coal from the Powder River and Illinois basins to India, China, and the EU. For investors looking to capitalize on a rebound in the U.S. coal market, The Motley Fool has authored a special new premium report detailing exactly why Peabody Energy is perhaps most worthy of your consideration. Don't miss out on this invaluable resource -- simply click here now to claim your copy today.

Click here to add Peabody Energy to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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