UPDATE: Brean Capital Upgrades Cloud Peak Energy to Buy, Names $13 PT on Valuation

In a report published Thursday, Brean Capital analyst Lucas Pipes upgraded the rating on

from Hold to Buy, and named a $13.00 price target. In the report, Brean Capital noted, “With this report we are upgrading Cloud Peak Energy to a Buy rating with a $13 target price on valuation and potentially lower costs with reduced diesel prices in 2015. We are also updating estimates and providing our Q3 earnings preview for both Cloud Peak Energy and Peabody Energy, the latter beginning the Q3 coal earnings season on Monday, October 20th. We expect both to report earnings slightly surpassing consensus estimates. We believe the risk/reward on Cloud Peak has turned more favorable as the consensus view on the PRB became increasingly more negative as persistent rail issues suppressed YTD demand and buying activity. However, we believe that directionally rail service will improve in 2015 on the combination of carriers' investments and lower domestic thermal coal demand. While this last point may seem counter-intuitive, we believe that it is ultimately most important that tons demanded are delivered and that the backlog of undelivered is cleared, allowing for increased purchasing activity. In addition, we do anticipate some PRB cost savings for both Cloud Peak and Peabody (among other surface mine operators) on lower diesel pricing in 2015. Fuel and lubricants are reported to contribute roughly 12%-13% of Cloud Peak's costs. On our adjusted estimates, we are upgrading Cloud Peak Energy to Buy with a $13 target price (unchanged from prior fair value estimate), but we maintain our Hold rating on Peabody with a lower $9 fair value estimate (from $10).” Cloud Peak Energy closed on Wednesday at $10.37.