How To Play The Chinese Coal Boom: Peabody Energy Corporation (BTU)

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Walter’s entry into the prospective Latin American steel markets will increase its growth opportunities. The company is also maintaining a solid balance sheet that will help it remain flexible, with cash of $129 million on hand and generating third quarter operating cash flow of $333 million.

Peabody is also reasonably priced in comparison to other top coal companies Walter Energy and Consol:

Peabody Alpha Natural Arch Coal Walter Energy Consol
Price to Sales 0.8 0.3 0.3 0.9 1.4

Making Peabody even more appealing is its top-in-industry profitability:

Peabody Alpha Natural Arch Coal Walter Energy Consol
EBITDA Margin 23% 12% 14% 22% 19.50%

Don’t be fooled

Peabody is the world’s largest private sector coal miner and expects earnings to rise due to higher volumes and prices at its Australian mines, with the main driver being rising Chinese coal demand. The stock currently trades around $23 to $24, but Wall Street analysts have a $32.50 price target on the company, suggesting upside of nearly 35% (check out which hedge funds love Peabody).

The article How To Play The Chinese Coal Boom originally appeared on Fool.com and is written by Marshall Hargrave.

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