Peabody Energy Corporation (BTU), Arch Coal Inc (ACI): Is Coal Worth Looking At?

Page 1 of 2

The coal market hasn’t exactly been the bastion of the bulls. Low natural gas prices have decreased America’s demand for thermal coal. Yet, others have noted that in the long run natural gas prices will probably inch upward. Upstream drillers have a strong incentive to avoid another supply glut, plunging natural gas to absurdly low prices. Also, the world’s growing liquefied natural gas (LNG) infrastructure will help to boost U.S. natural gas and make thermal coal more competitive.


Henry Hub Natural Gas Spot Price data by YCharts

Peabody Energy Corporation (NYSE:BTU) is a strong thermal coal producer with mines on both sides of the Pacific. The company is heavily exposed to the Chinese economy as its Australian mines are right next door. China’s recent announcement that it is considering banning low quality coal caused a scare for coal exporters, but already China is considering loosening its restrictions. At any rate, the Chinese ban on low quality coal should help Australian miners like Peabody Energy Corporation (NYSE:BTU) and hurt low quality Indonesian miners.

Peabody Energy Corporation (NYSE:BTU)

Peabody Energy Corporation (NYSE:BTU)’s total debt to equity ratio of 1.26 is on the higher end of the scale, but the company’s diversified operations make its debt load manageable. Its gross margin of 25.1% is strong, though its EBIT margin of -0.9% needs to rise. Peabody Energy Corporation (NYSE:BTU) is currently trading at a 2014 forward price to earnings (P/E) ratio around 13, and it is one of the better deals within the industry.

Arch Coal Inc (NYSE:ACI) is another coal miner, and it is opening up a high quality metallurgical mine to diversify its product lines. The company expects that the Leer mine should open in Q4 2013. The high ore grades should provide a significant boost to its bottom line and earnings. Its expected 2014 earnings per share (EPS) of $-0.62 is a significant improvement from its expected 2013 EPS loss of $-1.27.

With a gross margin of 16.3% and a total debt to equity ratio of 1.84, Arch Coal Inc (NYSE:ACI) is one of the more questionable coal miners. While it has a quick ratio of 2.2 and looks stable for the time being, it isn’t attractive as Peabody Energy Corporation (NYSE:BTU).

Cloud Peak Energy Inc. (NYSE:CLD) has suffered, as lower prices for Australian coal hurt its export prospects in the Asian markets. Still, the company is a strong low cost producer of U.S. thermal coal with a gross margin of 23.1%. Its established operations in the Powder River Basin give it low margins and close access to the Asian export markets. Overall, Cloud Peak Energy Inc. (NYSE:CLD) is a great way to invest in cheap U.S. coal reserves without costly legacy assets.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!