Peabody Energy Corp. BTU is set to release its first-quarter 2015 financial results before the market bell on Apr 23, 2015. In the prior quarter, this coal operator reported a huge negative surprise of 236.1%. Peabody currently has a Zacks Rank #3 (Hold). 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. Peabody expects 2015 U.S. coal demand to decline 50 million to 60 million tons due to lower natural gas prices.
Peabody has taken a number of cost saving initiatives to cope with the difficult coal market fundamentals including lower seaborne thermal coal prices and lackadaisical demand. Cost savings are expected to lower operating costs by 2% to 4%.
Despite cutting down on costs, Peabody’s U.S. coal revenues per ton are expected to decline by 2% to 4% in 2015, primarily due to the roll off of higher priced legacy contracts in the Midwest and a change in Western volume mix. This is also expected to have an adverse effect on first-quarter revenues.
The softness in coal demand is forcing Peabody to go slow on its development projects. Peabody’s Australian platform however provides it with an edge over its solely U.S. based competitors.
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 Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here.
Zacks ESP: Peabody Energy has an Earnings ESP of -6.06%. This is because the Most Accurate estimate stands at a loss of 35 cents while the Zacks Consensus Estimate is at a loss of 33 cents.
Zacks Rank: Peabody Energy carries a Zacks Rank #3 (Hold). Though this increases the predictive power, the company’s negative ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
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.
American Electric Power AEP has an earnings ESP of +0.90% and carries a Zacks Rank #3 (Hold).
CONSOL Energy Inc. CNX has an earnings ESP of +9.09% and carries a Zacks Rank #3.
Cloud Peak Energy CLD has an earnings ESP of +14.29% and carries a Zacks Rank #3.
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