Peabody Energy Trades Sharply Higher on Earnings Beat
Shares of Peabody Energy (NYSE: BTU) traded sharply higher on Monday morning, rallying nearly 13 percent following the company's third quarter earnings report. In afternoon trade, the stock has come off of its best levels but remains up around 10 percent to $28.40.
Peabody reported EPS of $0.51 -- much higher than the $0.34 Wall Street had been anticipating. Revenues were $2.06 billion, more than the $1.97 billion consensus estimate.
Over the past 12 months, shares of Peabody have been beaten down as the U.S. coal industry has felt the squeeze of slack demand and abundant natural gas. Last November, Peabody was trading near $50 per share. Now, even with Monday's rally, shares of Peabody remain below $30. As the share price has declined, expectations for the company have receded, allowing Peabody to easily exceed Wall Street estimates.
Is Peabody's strong performance a sign of things to come? Or will the rally be short lived?
From a longer-term view, Peabody seems to be in trouble. The company is facing a secular decline of the industry it operates in -- many doubt that the U.S. will ever build another coal-fired electric plant. Even with the concept of “clean coal,” a significant, politically active coalition in the U.S. seems determined to phase coal out completely from the energy industry.
That trend has lead to the bankruptcy of Patriot Coal (OTC: PCXCQ). Yet, shares of the company rallied over 16 percent on Monday, likely moving in line with Peabody.
Other coal names also saw a boost, including Alpha Natural Resources (NYSE: ANR) which moved up over six percent.
Investors considering taking a stake in these coal companies might consider the state of the industry. While coal is facing a secular decline, sentiment and expectations have clearly come down to unrealistically bearish levels.
In the short-term, these stocks might get a further catalyst to the upside if Mitt Romney was to be elected to the U.S. presidency. Presumably, a President Romney would be more open to coal than a second-term Obama.
As Romney has surged in the polls, so too has the share prices of coal stocks. James River Coal (NASDAQ: JRCC) for example, has soared an unreal 76 percent over the last month alone. During the same time period, Alpha Natural Resources is up almost 29 percent and Arch Coal (NYSE: ACI) has added more than 18 percent.
Traders who are looking to use the upcoming election as a potential trading catalyst, should certainly be paying close attention to the coal sector. Peabody's strong third-quarter results along with a rising Romney in the polls could mean that this group has more upside.
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