Short Interest in Peabody Energy and Walter Energy Continues to Rise (BTU, WLT, YZC)

The largest percentage upswings in short interest in coal-related stocks between the May 15 and May 31 settlement dates happened to Peabody Energy BTU, Walter Energy WLT and Yanzhou Coal Mining YZC. Below we take a quick look at how these three stocks have fared and what analysts expect from them.

The number of shares sold short in Arch Coal ACI, CONSOL Energy CNX and James River Coal JRCC also grew somewhat in the period.

Short interest in Alpha Natural Resources ANR and Westmoreland Coal WLB was essentially flat, compared to the previous period.

However, short interest in Alliance Resource Partners ARLP and Rhino Resource Partners RNO declined more than 15 percent, while that in Alliance Holdings AHGP, Cloud Peak Energy CLD and SunCoke Energy SXC fell more modestly.

Peabody Energy

This St. Louis-based miner saw short interest rise almost 11 percent in late May to about 14.40 million shares. The number of shares sold short has grown for four consecutive periods and has reached more than five percent of the float. Days to cover has crept up to almost two.

Speculation had activist investor Carl Icahn possibly pushing for changes to the board of Peabody Energy. The company currently has a market capitalization of less than $5 billion and offers a dividend yield of about 1.8 percent. Note that its operating margin and its return on equity are both in negative territory.

Yet 17 of the 25 analysts polled by Thomson/First Call recommend buying shares, seven of them rating the stock at Strong Buy. The analysts' mean price target suggests more than 39 percent potential upside relative to the current share price. That target is less than the 52-week high reached last fall, though.

Shares fell to a multiyear low yesterday, and the share price is down about 34 percent since the beginning of the year. Peabody Energy has underperformed competitor CONSOL Energy and the broader markets over the past six months, but it has outperformed Arch Coal.

Walter Energy

This Birmingham, Alabama-based producer and exporter of metallurgical coal for the steel industry saw short interest grow almost 14 percent in the period to about 17.05 million shares. That was more than 27 percent of the float and the largest number of shares sold short in the past year. The days to cover rose to about three.

Walter Energy shares fell to a multiyear low in May, and insiders have been purchasing shares. The company currently has a market cap of around $877 million and offers a dividend yield of about 3.3 percent. Here too the operating margin and the return on equity are both in the red.

The consensus recommendation on Walter Energy is to hold shares, though 10 of the 24 polled analysts recently recommended buying. The analysts' mean price target, or where they expect the share price to go, is more than 48 percent higher than the current share price. That target is much less than the 52-week high, though.

This stock also reached a new multiyear low yesterday, and the share price is down more than 62 percent year-to-date. Walter Energy has underperformed the likes of CONSOL Energy and Westmoreland Coal, as well as the broader markets, over the past six months.

Yanzhou Coal Mining

Short interest in this Chinese company increased about 12 percent in the final weeks of May to more than 1.48 million shares. The number of shares sold short has been rising since the end of March, and the average daily volume in the period was the highest in at least a year. Days to cover was about four.

This miner of coking coal and thermal coal was trading near the 52-week low in the final days of May. Yanzhou Coal has a market cap of more than $4 billion and a dividend yield near five percent. The price-to-earnings (P/E) ratio is less than the industry average, but the long-term EPS growth forecast is only about five percent.

Only one analyst was surveyed, and that analyst recommends selling shares. The current share price is higher than that analyst's price target.

Here too the stock hit a new multiyear low yesterday. The share price is down more than 51 percent since the beginning of the year. So it should come as no surprise that Yanzhou Coal underperformed peer Alliance Holdings and the broader markets over the past six months.