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Why Shares of Cloud Peak Energy Inc. Jumped 17% Today

By Travis Hoium – Oct 28, 2016 at 1:20PM

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Earnings beat expectations, but are coal stocks really ready for a rebound?

Image source: Getty Images.

What happened 

Shares of coal producer Cloud Peak Energy Inc. (CLD) jumped as much as 16.9% today after the company reported third-quarter earnings results. At 12:30 p.m. EDT, the stock was still up an impressive 12.9%. 

So what

Revenue plunged 28% in the quarter to $217.1 million and net income of $8.9 million a year ago swung to a loss of $1.6 million, or $0.03 per share. But Wall Street analysts expected a $0.12-per-share loss, so the stock responded positively today. 

Management also raised 2016 EBITDA guidance, which gives investors an idea about the cash flow coming from the business, from $75 million-$95 million to a range of $90 million-$100 million. That got investors and analysts excited that future results would improve for the highly leveraged company. 

Now what

Investors are reading a lot into a small earnings beat because Cloud Peak Energy is still losing money. And it can't be overlooked that the coal industry in general is in a long decline as coal plants are shut down and natural gas and renewables grow their percentage of global energy production. Sometimes beating expectations is a good sign for a company, but today's move in Cloud Peak Energy doesn't show the fundamental improvement needed for coal to be a good business long term and it isn't a buying opportunity for investors today. 

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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