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On Monday, September 24, analysts at Bank of America downgraded shares of Peabody Energy Corp. (BTU). The firm lowered its rating on the stock from a Buy to an Underperform and set a $22.00/share price target. As a result of the downgrade, shares of BTU reacted quite dismally, trading down roughly 4.10% since the opening of trading on Monday. That said, I wanted to examine the company a bit further and take a look at how it compares to some of its industry-based competitors in terms of profit margin and operating margin. The two companies I chose to compare with Peabody Energy Corp. are: Arch Coal, Inc. (ACI) and BHP Billiton Limited (BHP).

Overview: Peabody Energy Corp.

As noted by Yahoo! Finance, "Peabody Energy Corporation engages in the mining of coal. It mines, prepares, and sells thermal coal to electric utilities and metallurgical coal to industrial customers. The company owns interests in 30 coal mining operations located in the United States and Australia, as well as owns joint venture interest in a Venezuela mine. It is also involved in marketing, brokering, and trading coal. In addition, the company develops a mine-mouth coal-fueled generating plant; and Btu Conversion projects that are designed to convert coal to natural gas or transportation fuels; and clean coal technologies. As of December 31, 2011, it had 9 billion tons of proven and probable coal reserves. The company was founded in 1883 and is headquartered in St. Louis, Missouri."

The Profit Margin Comparisons of Peabody Energy Corp.

As a whole, and in my opinion, the Energy sector has one of the most diverse ranges of profit margins when compared to some of the other industries I've written articles on. For example, there is one energy company, Peabody Energy, Inc., actually outpaces quite substantially and one that it does not. The first of these companies is Arch Coal, Inc., which has been substantially outpaced by Peabody Energy in terms of profit margin.

In the last 12 months Peabody Energy has demonstrated a positive profit margin of 10.54%, whereas Arch Coal, Inc. has demonstrated a negative profit margin of -7.83%. Comparatively speaking BTU surpasses ACI by a ratio of 1.74 to 1. The second of these companies is BHP Billiton Limited, which substantially outpaces Peabody Energy in terms of profit margin. In the last 12 months BHP Billiton has demonstrated a positive profit margin of 21.16%, whereas Peabody Energy Corp. has demonstrated a positive profit margin of 10.54%. Comparatively speaking BHP surpasses BTU by a ratio of 2.01 to 1.

The Operating Margin Comparisons of Peabody Energy Corp.

As was the case with profit margins, and in my opinion, the Energy sector also has some of the most diverse operating margins I've seen since I've started writing. For example, Peabody Energy, Inc. actually outpaces the one of the previously mentioned two companies, and is outpaced by the other. The first of these companies is Arch Coal, Inc., which has been substantially outpaced by Peabody Energy in terms of operating margin.

In the last 12 months Peabody Energy has demonstrated a positive operating margin of 18.11%, whereas Arch Coal, Inc. has demonstrated a positive operating margin of only 7.25%. Comparatively speaking BTU surpasses ACI by a ratio of 2.49 to 1. The second of these companies is BHP Billiton Limited, which substantially outpaces Peabody Energy in terms of operating margin. In the last 12 months BHP Billiton has demonstrated a positive operating margin of 37.46%, whereas Peabody Energy Corp. has demonstrated a positive operating margin of just 18.11%. Comparatively speaking BHP surpasses BTU by a ratio of 2.06 to 1.

Final Analysis

Should potential investors consider the chance to establish a position in Peabody Energy, Inc. especially after the weakness experience due solely in part to the Bank of America downgrade? From a comparative standpoint with regard to the company's margins relative to some of the biggest names in the energy sector, I think the numbers speak for themselves and demonstrate clear weakness from a fundamental standpoint. I'd avoid BTU at these levels, although I may consider a position if the stock falls below $19/share.

Source: As Peabody Demonstrates Fundamental Weakness, Investors Should Look Elsewhere