Seeking Alpha
Long/short equity, contrarian, research analyst, portfolio strategy
Profile| Send Message|
( followers)  

Shares of Peabody Energy Corp (BTU) fell by more than 11% on Tuesday to close at a new 52-week low following a weak earnings report.

(click to enlarge)BTU ChartBTU data by YCharts

Earnings Report

  • Q2 2012 earnings of 73 cents per share compared to $1.16 per share a year ago.
  • Year-over-year revenue growth of 0.9%.
  • Operating expenses up 10.5% from a year ago.
  • $500 million in cash.
  • $6.27 billion in debt.
  • Q3 earnings expected to be between 20 and 45 cents.

Broad Market Sell-Off

While earnings were somewhat disappointing, another factor in the sell-off was the price action in the broad market indices. The S&P 500, Dow, and Nasdaq all fell by nearly 1% on Tuesday. Given BTU's beta of 1.46, it was not surprising that the stock moved lower.

Sector Sell-Off

The selling spread from BTU to the other major coal stocks. Consol Energy (CNX), Alpha Natural Resources (ANR), Arch Coal (ACI), and James River Coal (JRCC) all finished the session sharply lower.

(click to enlarge)BTU ChartBTU data by YCharts

My Take

As the coal sector as a whole continues to move lower, I am becoming more inclined to agree with noted investor Wilbur Ross's negative view of the sector. It is interesting that coal stocks continue to hit new lows despite a more than 50% increase in natural gas prices from their recent lows. However, given the decline in coal stocks, it might be to late to sell the sector. For interested buyers, I believe that BTU is a better play than the more speculative ACI, ANR, or JRCC. Another high quality coal name to consider is Alliance Resource Partners (ARLP). For those looking to buy into coal, I would look to buy BTU or ARLP after a meaningful bullish reversal in the stock. Thus far, bottom fishing in the sector has not been much fun, so I would not be a buyer right now.

Source: Peabody Energy Leads Coal Stocks Lower