Peabody Energy Corp. (BTU) will release its fourth quarter 2014 financial results before the market bell on Jan 27, 2015. In the prior quarter, this coal operator reported a positive surprise of 10.61%. Peabody currently has a Zacks Rank #4 (Sell). Let’s see how things are shaping up at Peabody prior to this announcement.
Factors to Consider this Quarter
Notwithstanding Peabody’s exposure to both thermal and metallurgical (met) coal, the company is presently going through a rough phase as increasing usage of natural gas and alternative energy is steadily eating into coal’s share in power generation.
The softness in coal demand is forcing Peabody to go slow on its development projects. As a result the company lowered its 2014 capital spending projection to $200–$220 million from its prior estimate of $210–$250 million.
Peabody’s Australian platform does provide it with an edge over its solely U.S. based competitors. However, the introduction of coal import tariffs by China during the fourth quarter could impact the company’s Australian shipment.
Peabody primarily operates open-cut mines in Australia, which are less expensive to operate than underground mines. During the fourth quarter of 2014, Peabody Energy entered into a joint venture with the largest coal producer of Australia, Glencore Coal Pty limited (Glencore), to develop mines in Hunter Valley.
On the whole, things are not going too well for the coal miners as state and federal agencies are stepping up regulations to curb the carbon footprint. In Jun 2014, the U.S. Environmental Protection Agency (EPA) proposed a plan to lower carbon emission from power plants by 30% by 2030 from 2005 levels. There has been a clear trend among utility operators to place more emphasis on natural gas and alternate sources of fuel for electricity production. Peabody Energy like every other coal miner is paying the price for the shift away from coal.
Earnings Whispers
Our proven model does not conclusively show that Peabody Energy is likely to beat earnings estimates this quarter. That is because a stock needs to have both a positive Zacks Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here.
Positive ESP: This is because the Most Accurate estimate stands at a negative 35 cents while the Zacks Consensus Estimate is a negative 27 cents, resulting in +2.78% ESP.
Zacks Rank #4 (Sell): We particularly caution against stocks with Zacks Ranks #4 and 5 going into the earnings season.
Other Stocks to Consider
Here are some companies tied to the coal industry worth considering on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter.
Foresight Energy LP (FELP) has an earnings ESP of +3.57% and carries a Zacks Rank #3 (Hold).
Arch Coal (ACI) has an earnings ESP of +7.89% and carries a Zacks Rank #3.
Cloud Peak Energy (CLD) has an earnings ESP of +50.0% and carries a Zacks Rank #3.
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