We have downgraded our rating on Peabody Energy (BTU) to Underperform from Neutral as the fourth-quarter results missed our projection by quite a margin. The future growth of Peabody is tied up with the timely yet uncertain completion of many projects that are lined up in the U.S. and Australia.
This uncertainty, along with increasing completion from natural gas producers and an increase in operating costs, have prompted us to downgrade our outlook on the stock. In addition, weather and transportation challenges have impacted demand and profitability for the company.
Over the last five years, shares of Peabody Energy have traded in a range of 6.2x to 49.6x trailing 12-month earnings. Our target price of $28.00 reflects a P/E multiple of 9.3 based on 2012 EPS.
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