Peabody Energy Corp. (BTU) will release its second quarter 2014 financial results before the market bell on Jul 22, 2014. In the prior quarter, this coal operator reported a negative earnings surprise of 1800.0%. 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
Peabody is presently going through a rough phase as increasing usage of natural gas and alternate energy continues to eat into coal’s share in power generation. Despite difficulties, Peabody’s presence in two of the fastest growing coal markets in the U.S. and its exposure in Australia will help it to face, if not overcome, these challenges.
The World Steel Association projects a 3.1% increase in global steel usage in 2014. Renewed demand for metallurgical coal is thus expected to provide some support to the beleaguered Peabody.
In the first quarter, Peabody’s performance was adversely hit by the lower realized prices of product sold due to a supply glut in the global markets. Transportation also plays a vital role in domestic coal sales. With continuing congestion in railroad services, coal prices will continue to be under pressure as deliveries are stalled. .
To add to the woes of this coal producer, the U.S. Environmental Protection Agency (EPA) has lately proposed a Clean Power Plan, the primary objective of which is to cut emissions from existing power plants by 30% over the 2005 to 2030 time frame. If implemented, the prospects of coal for the utility industry will be delved a huge blow.
Earnings Whispers
Our proven model conclusively shows that Peabody Energy is likely to miss earnings 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.
Negative ESP: This is because the Most Accurate estimate stands at negative 29 cents while the Zacks Consensus Estimate is negative 27 cents, resulting in -7.41% ESP.
Zacks Rank #4 (Sell): Peabody’s Zacks Rank #4 combined with a -7.41% ESP indicates that the company is going to miss the earnings forecast this quarter. We particularly caution against stocks with a Zacks Rank #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.
CONSOL Energy Inc. (CNX) has an earnings ESP of +12.00% and carries a Zacks Rank #2 (Buy).
American Electric Power Company Inc. (AEP) has an earnings ESP of +2.67% and carries a Zacks Rank #2 (Buy).
Southern Co. (SO) has an earnings ESP of +2.99% and carries a Zacks Rank #3 (Hold).
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