'The Bigger The Base, The Higher The Space': Analyst Sees 45% Upside Potential On This Mining Play

The Energy Select Sector SPDR Fund XLE was up 34.45% year-to-date, alongside major energy names such as Exxon Mobil Corp XOM and Chevron Corporation CVX, both also having a banner year.

The industry, according to analyst Gianni Di Poce, has more room for growth. He pointed out one company in particular with a market valuation far smaller than that of the leading energy companies.

“Peabody Energy Corporation BTU is a global coal mining company which generated $3.32 billion of revenue and $360.1 million in earnings in 2021,” Di Poce wrote in his weekly Benzinga Pro Insider Report. “Free quarterly cash flow is a strong $301.7 million.”

Peabody reported second-quarter earnings in July that showed total revenues came in at $1.32 billion and EPS of $2.81, both of which missed analyst consensus estimates.

Coal was up 136.66% year-to-date, which was a benefit for the mining company, Di Poce noted while saying he thought the company was a strong short squeeze candidate.

“I think BTU is a solid candidate for a short squeeze as over 13% of its floating shares are being sold short. A reignition of the inflation trade could be the catalyst to push this stock higher again.”

Read more: The Inflation Trade 'Isn't Dead Yet': This Analyst Sees 23% Upside On This Energy Play

The technical picture showed a descending triangle pattern that extended for several months. According to Di Poce, it fits under the category of "the bigger the base, the higher the space." This suggested the stock has a lot of room to run if it broke out of the triangle.
 

Action plan: “I am bullish on BTU so long as the stock remains above $20.50-$21.50,” the analyst wrote. “The upside target is $34-$35.”

Photo: Courtesy Peabody Energy