CSX Corporation (CSX), Peabody Energy Corporation (BTU): Why Everyone Needs to Relax About Coal

A less threatened coal market in the U.S., coupled with Peabody Energy Corporation (NYSE:BTU)’s strong international sales (especially in Australia) could be enough to keep margins healthy and allow the company to capitalize on a debt to equity ratio impressively sticking below 1.

Peabody Energy Corporation (NYSE:BTU) also appears ready to lead the charge if UCG becomes a major coal source. The company purchased 29 Wyoming coal leases for $6.5 million in 2011, stocked with billions of tons of coal seemingly ripe for UCG. With its stock price near a five-year low, Peabody may be worth a buy.

Meanwhile, if CONSOL Energy Inc. (NYSE:CNX) stays profitable, it won’t be thanks to coal. Heavily exposed to that dying Appalachian basin, the company has actually suspended many of its coal operations in order to focus on its significant natural gas footprint. With a consistent but uninspiring performance during the past few years, the company will be heavily investing in its natural gas arm—a sure sign that company’s executives have more optimism about a natural gas future than a coal future.

This might be a mistake, since its low-cost mines actually keep its profitability above its Appalachian competitors and natural gas profitability is bleak. Either way, the effects of the shift do not look promising for the company’s near-term profitability. Costs associated with gas wells and related equipment increased 10% through the first half of 2013; this is part of the reason that CONSOL Energy Inc. (NYSE:CNX)’s margin slipped down into negative territory. Time will tell whether the switch pays off, but for now, stay away.

Will Chavey has no position in any stocks mentioned. The Motley Fool has the following options: long January 2014 $30 calls on Chesapeake Energy (NYSE:CHK).

The article Why Everyone Needs to Relax About Coal originally appeared on Fool.com.

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