Peabody Energy Corp. (BTU) will release its third-quarter 2014 financial results before the market bell on Oct 20, 2014. In the prior quarter, this coal operator incurred losses in line with estimates. 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 patch 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.
Peabody’s cost control initiatives paid off in the third quarter. In addition, better-than-expected results in western U. S. and improvement in performance of the Australian metallurgical mines could have a positive impact on the third quarter’s performance.
As a result Peabody expects adjusted EBITDA in the range of $190 million to $210 million in the third quarter, which is above its prior targeted range of $150 million to $200 million.
Overall, the global coal demand fundamentals in the third quarter are showing signs of improvement, but we do not believe that such a marginal movement will make much of a difference to Peabody’s results.
In addition, the reintroduction of coal import tariff by China might impact the export opportunities of Peabody’s Australian platform. The Chinese government has decided to levy tariffs on coal imports to safeguard the interest of domestic coal producers. China imposed a 6% tariff on thermal coal imports and a 3 % tariff on coking coal.
Earnings Whispers
Our proven model could not conclusively show that Peabody Energy will beat the bottom-line 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.
Zero Earnings ESP: This is because the Most Accurate estimate stands at negative 65 cents while the Zacks Consensus Estimate is also a negative 65 cents, resulting in 0.00% ESP.
Zacks Rank #3 (Hold): Peabody’s Zacks Rank #3 when combined with a 0.00% ESP makes a positive surprise prediction difficult. 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.
NRG Energy Inc. (NRG) has an earnings ESP of +32.39% and carries a Zacks Rank #2 (Buy).
Ameren Corporation (AEE) has an earnings ESP of +0.80% and carries a Zacks Rank #3 (Hold).
Duke Energy Corp. (DUK) has an earnings ESP of +0.65% and carries a Zacks Rank #3 (Hold).
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