Coal industry’s major players
The American coal mining and processing giant, Arch Coal Inc (NYSE:ACI), is the second-largest supplier of coal in the U.S. The company accounts for more than 16% of the country’s domestic market. Just like Peabody, Arch Coal Inc (NYSE:ACI) has been hit hard by the declining coal prices. On the July 3, 2013, the company’s shares closed at $3.72, 48% less on a YOY basis. In its most recent quarter, the company reported a 21% slide in its sales as compared to the same quarter last year. Sales (ttm) for the year were down by 11%. Arch Coal Inc (NYSE:ACI) is yielding a dividend of 3.23% and has a ROE of almost -28%. A negative PEG of 0.55 and a mean recommendation of 2.8 suggest that Arch Coal Inc (NYSE:ACI) isn’t a good buy at the moment.
On the other hand, the top coking coal producer, Alpha Natural Resources, Inc. (NYSE:ANR), has been keen on curbing its costs in order to outmaneuver the weak coal market. Thanks to its aggressive cost-cutting, Alpha Natural Resources, Inc. (NYSE:ANR) reported a lower-than-expected loss in the first quarter. Considering this, there’s still a lot of room for improvement for the company. A negative ROE of 41% and an ROI of -19% shows that Alpha Natural Resources, Inc. (NYSE:ANR) is among the hardest hit by low coal prices. A super high beta of 1.95 shows its dependence on economic factors. A negative PEG of 0.46, plus a mean recommendation of 2.7 on the sell side, doesn’t make it an attractive buy at this stage.
Conclusion
The future of Peabody, and the coal industry, rests on global coal prices. Unfortunately, coal prices won’t recover that much in the near future, making it hard for the industry to mint substantial incomes. The new carbon dioxide limits in the U.S., along with the latest ban on coal imports in China, would further pressurize the global coal prices. Moreover, China’s rising steel exports would drive steel prices down, causing another dip in met coal prices. In other words, coal prices are expected to slide even further in the coming months. Hence, Peabody Energy hasn’t bottomed out yet.
Cold winters in the U.S. would make coal slightly cheaper than natural gas, giving an impetus to thermal coal demand. This would increase thermal coal’s price to some extent. Therefore, until November, 2013 (start of winter season in the U.S.), things don’t look pretty for Peabody Energy.
The article Has This Giant Bottomed Out? originally appeared on Fool.com and is written by Waqar Saif.
Waqar Saif has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Waqar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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