Wednesday, October 22, 2014

It's Not Peabody Energy's Fault

This article was originally published by Seeking Alpha on September 22, 2014

By Sarfaraz A. Khan

Summary: Peabody Energy’s shares have dropped to 52-week lows. Several analysts have recently downgraded the stock, citing identical reasons. Are there any signs of improvements in market conditions?

The shares of Peabody Energy (NYSE:BTU), the world's largest private sector coal producer that makes both thermal and metallurgical coals, have recently touched 52-week lows and you can hardly blame the company since it is an awful time to be a coal producer.

Peabody's shares, along with other coal stocks such as Alpha Natural Resources (NYSE:ANR) and Arch Coal (NYSE:ACI), have witnessed double-digit drops this year on the back of weakening coal market fundamentals. Meanwhile, the Obama administration's decision to cut carbon emissions has also not helped.

The Environmental Protection Agency has planned to cut carbon emissions by 30% by 2030 from 2005 levels by targeting coal-based power plant operators, which could have an adverse impact on the demand of coal.

To exacerbate the already tough situation, analysts have moved in with their downgrades. On Thursday, Goldman Sachs cut Peabody Energy's rating from Neutral to Sell as the investment firm projects further drops in metallurgical coal prices in the fourth quarter and isn't optimistic about thermal coal prices either. Thermal coal is mainly used for power generation while metallurgical coal is used in steel making.

Meanwhile, analysts at Cowen & Co have also predicted additional drops in coal prices in the fourth quarter. Similarly, Northland Securities has also downgraded the company's rating to Reduce. Consequently, Peabody Energy's shares dropped to 52-week lows …. Read fullarticle at Seeking Alpha.