Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



How Is Peabody Energy Corporation Different From Other Coal Miners?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Most coal miners were under pressure this year, and Peabody Energy (NYSE: BTU  ) was not an exception. However, there is one thing that distinguishes Peabody Energy from the rest of the pack: The company was profitable last year on an adjusted earnings basis. Will Peabody Energy manage to outperform this year as the pricing environment remains challenging?

Met coal mines in Australia are an advantage for Peabody
Peabody produces most of its thermal coal in the U.S., while all of its met coal is produced at Australian mines. Fueled by growing production from BHP Billiton (NYSE: BHP  ) , the output from Australia is one of the main sources of met coal price softness. The reason why BHP Billiton continues to play the dangerous game of flooding the market with additional met coal is simple. BHP Billiton can afford it because Australian production has lower costs.

The same is true for Peabody' Australian mines. While met coal miners like Walter Energy (NASDAQOTH: WLTGQ  ) struggled to make ends meet with their higher-cost U.S. and Canadian mines, Peabody maintained positive margins at its Australian operations last year. Yes, the margins were very thin, but it was difficult to expect more given the current met coal prices.

Just like BHP Billiton, Peabody Energy is set to benefit when weaker players leave the met coal market due to cost inefficiency. Until then, Peabody could afford to run its met coal operations without the need to subsidize them.

Lower debt burden and improved thermal coal outlook
Peabody has amassed a substantial $6 billion debt position. However, its debt burden is not a major challenge. The company maintained meaningful operational cash flow throughout 2013, and it is likely to repeat this performance in 2014. In comparison, Walter Energy had negative operational cash flow last year, and Arch Coal (NYSE: ACI  ) swung into negative cash flow territory in the fourth quarter.

Debt is the factor that limits Arch Coal's upside. While the company has $5.1 billion of debt, its revenue is more than twice lower than Peabody's. The less revenue you generate, the bigger the margins you will need to successfully deal with the debt. Arch Coal's margins deserved to be better last year, but this year there are signs that thermal coal-heavy producers will feel some improvement.

CONSOL Energy (NYSE: CNX  ) has recently stated that thermal coal demand was strong in the first quarter. As a result, CONSOL Energy raised its annual coal production guidance from 30.1-32.1 million tons to 31-33 million tons. This is a positive comment for thermal coal producers like Peabody Energy and Arch Coal. While the analyst consensus is that Peabody's earnings will be around zero in the first quarter, there is a chance that the company will be able to demonstrate positive earnings numbers.

Bottom line
Peabody Energy is in a better position than most other coal miners. The company's met coal production is low-cost, which allows it to weather the price storm. Peabody's heavy exposure to thermal coal market could bring positive surprises when the company releases its first quarter results amid signs of improved demand. What's more, Peabody pays a meaningful dividend that yields just under 2%. All in all, Peabody's position looks different in comparison to other coal miners.

3 stock picks to ride America's energy bonanza
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don’t miss out on this timely opportunity; click here to access your report -- it’s absolutely free. 

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2908600, ~/Articles/ArticleHandler.aspx, 8/28/2015 1:42:12 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Vladimir Zernov

Vladimir Zernov believes that fundamental analysis works best with energy and materials stocks and covers them on Motley Fool.

Today's Market

updated 4 hours ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/27/2015 4:01 PM
ACI $7.03 Up +1.94 +38.11%
Arch Coal, Inc. CAPS Rating: **
BHP $36.00 Up +1.92 +5.63%
BHP Billiton Limit… CAPS Rating: ***
BTU $2.28 Up +0.75 +49.02%
Peabody Energy Cor… CAPS Rating: **
CNX $13.86 Up +1.68 +13.79%
CONSOL Energy, Inc… CAPS Rating: **
WLTGQ $0.08 Down -0.01 -7.06%
Walter Industries,… CAPS Rating: **