Is Peabody Energy (NYSE: BTU) a hyper-growth stock?
Stock Name and Trading Stock Exchange Platform
Peabody Energy Corporation – NYSE (NYSE: BTU)
The Stock Sector
Peabody Energy is a mining company in the Energy minerals sector.
It is involved in the extraction of coal and its distribution for electricity production and steel making.
It is also engaged in trading and brokerage activities. The company operates in several countries including the USA, UK, Australia, and China.
It owns the majority of its mines in the USA in Alabama, Wyoming, Colorado, Arizona, New Mexico, and many more. It is the largest coal miner in the country.
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Peabody is divided into the segments: Seaborne Thermal, Seaborne Metallurgical, Powder River Basin, and Corporate & Others.
The company was founded in 1883 in Chicago, Illinois by Francis S. Peabody. It has its headquarters in Missouri, US.
Recent Most Important News on Peabody
The energy boom following the Russian-Ukraine crisis has catapulted companies in the sector to tick higher.
Hydrocarbon companies have been the biggest gainer, with Oil and Coal companies exploding since the year began.
Supply shortages have left the world vulnerable with the importance of hydrocarbons made crystal clear.
Coal and Crude oil had been on the decline due to low demand as a result of the pandemic and the transition to green energy, which threatened their existence.
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Peabody and other energy companies have emerged in the limelight as rushed to meet demand whilst the price of coal to near-record highs, almost quadrupling from last year.
Peabody has soared tremendously from the start of the year but has eased back due to market volatility. The price of coal now sits at $400 per metric ton and is projected to go higher.
The company has had its fair share of trouble with regulators. Greenhouse emission disputes are common in the sector.
Coal industries in an ironic twist gained favor from lawmakers when the Supreme court recently ruled limiting the EPA’s ability to control emissions from coal-fired plants.
Insider selling has also been witnessed with the CFO Mark Purbeck selling shares worth $309K.
Two of the company’s subsidiaries announced a repurchase of term loan debt and senior secured notes from Peabody for a total of $90M aggregate principal.
The company released its Q1 results in late April and is scheduled to do so again in August.
Current Position of Peabody
The company has come a long way, from filing for bankruptcy to being of the best market performers this year.
Rallying commodities has driven the growth of Peabody and other players in the space.
Growing concerns about the death of the coal industry have been debunked by the recent run.
This has been further reiterated by actions taken by countries that were previously against fossil fuels.
India and Germany are case examples that had phased off coal mining but have now aggressively resumed to meet the energy demands.
Peabody has registered substandard results due to wonky markets in the year before.
The pandemic was a huge blow and coal prices slumped during the period.
The company’s bottom line took a haircut and they recorded poor performance in the past two years.
Sanctions on Russia have been largely accredited to the spiking coal prices.
Russia accounts for 19% of the world’s coal reserves and consequently disrupted the sector when the supply was cut off.
The strong rise in coal prices will lead to higher margins for companies like Peabody and others.
Such a profitable surge has not been seen before in the energy markets with the prediction of new all-time highs in the prices of commodities expected.
This trend is forecasted to continue and the energy market is forecasted to thrive for years.
Factors that support this trend are the low supply and skyrocketing demand.
$BTU is a big bet to look forward to given the elevated prices. It has been shaky in the past and it’s recovering with the possibility of take-off.
Peabody is a leader in Thermal coal and the power demand is way beyond current production.
Coal is by far the most effective way to generate power in mass, with one kg of the fossil fuel 29 million Joules worth of energy.
With a decent market capitalization of $2.698B, the company is well-positioned for the market ahead. A user on Yahoo finance describes it quite well saying:
This is the cheapest stock in the market. This is the cheapest major, profitable cash-generating company I have ever seen based on Price/EBITDA, P/CF…US thermal coal keeps rising, which is going to lead to HUGE profit gains when low priced contracts roll off for PRB, ILB thermal are replaced by new contracts with much higher margins.
The notion that coal is dead is not factually grounded. Even though it has been labeled the dirtiest fossil fuel, it has made a surprising comeback as the world thirsts for energy.
Renewables are unreliable at the moment and will take a long time to get to mass production, until then the old faithful coal will have to do for now, despite pessimism by mass media.
Coal is the most abundant source of electricity and currently provides more than 1/3 of the world’s electricity.
The cyclic coal market has sometimes made it difficult for companies in the space, most coal miners have at some point filed for bankruptcy.
Peabody is a very prospective company and could go to the moon if energy keeps booming
Peabody Stock Price Chart
The stock is trading at $18.76 per share as of the 7th of July 2022. It is up by (+1.74%) from its previous close.
Institutions make up the majority of shareholders accounting for 70.01% of total ownership. Insiders hold 1.14%, and the rest is public float.
It is trading at a day range of $17.42 – $19. The stock traded at an annual high of $33.29 and an annual low of $7.76. the average volume of shares traded is 6.34M.
The share is justified and dirt cheap at the moment. The stock has fallen from its highs and retraced its gains early in the year.
The stock is down by -22% in the past week and -34% in the past month.
The market has been in a panic and mass hysteria has triggered the downturn in the markets affecting $BTU
BTU has crushed the year, surging by +65% in the last 6 months. It is up 87% in the past year and has at some point shot up by as much as 73% in a single month. It is a remarkable stock.
Sentiment on $BTU
Experts have signaled a nod given the bullish energy market. Peabody is seen as an undervalued company with huge upsides.
The stock has received a negative outlook due to its bad history. Short interest has been high in the stock but this is quickly changing with the shift in the sector.
Past performance is not an indicator of the future direction and a short squeeze may occur if the stock explodes. It has witnessed momentary surges which have been brought down by market swings.
Although it seems like it’s going nowhere fast, it is slowly and steadily gaining momentum.
Pros of BTU based on Investors Outlook
- Incredibly Cheap – The stock is very lowly priced compared to others in the sector. It is a great entry into the markets even whilst it’s booming.
- Rising Commodity Prices – With the rise in commodities, money will be flowing to the sector and that is where investors want to be. The company owns substantial coal reserves and stands to benefit from the rally in prices.
- Huge Growth potential – The company is in a good momentum and has been on a run this year despite the wonky markets.
- Undervalued – The stock has a P/E ratio of 8.14 and is miles away from its fair value. It has more potential to skyrocket, especially in a favorable environment.
Cons of BTU based on Investors Outlook
- Ugly balance sheet – The company has not been in the best position and has posted massive losses in the previous quarters. This has discouraged investors who are only interested in ‘The best balance sheet’.
- Weak Cash flow – The company has registered dismal cash flow despite the rallying coal prices. FCF decreased by -666% over the yea, recorded at -$255M. Some investors have grown impatient and cashed out too soon. It will take time for the company to flourish even amidst inflationary prices but it will be astonishing once it takes off.
Profits for BTU
The company released its Q1 earnings in April and the results were not very appealing. They reported a net loss of $119.5M.
Adjusted EBITDA for the quarter was recorded at $327.5M. Revenue was posted at $691.40M, an uptick of +6.16% year-on-year.
Operating expenses went up by +1.65%, coming in at $98.9M. The earnings per share were stunningly up by +384.80% registered at 1.60.
The company is making progress in reducing its debt load, with total liabilities recorded at $3.05B, decreasing by -15.24 over the year.
Cash and short-term investments increased by 41% over the year, recorded at $823M. Total assets similarly increased by 10% valued at $4.94B.
Peabody shows a strong signal of turning the balance sheet around. If they overcome constraints and keep operating optimally whilst prices rise, they will crush the metrics and grow astoundingly.
It has diluted its shares but could issue a buyback later to make it up to shareholders. A special dividend is not to be ruled out once they achieve solid profitability, they last issued dividends in 2019.
The financials are scary at the moment things are getting better and the tables will turn in favor of the company.
It is an industry leader and will be ahead to capitalize on the commodities super cycle.
Pros for Investing based on the General Outlook
- Ramped up production – The company is scaling its activities to produce more amid the high prices and will likely benefit from this move.
- Delivered targets – The $600M cash hedge loss that made Q1 look bad will be adding back to earnings over the next four quarters as coal is delivered against it.
- Unhedged Seaborne Thermal coal – Peabody has nearly 60% of seaborne coal sales unhedged will be coming on line and most of its hedges will cease end of the year.
- Energy demand and eased off regulations – The energy demand has forced regulators to revisit the coal ban. Australia has particularly embraced coal and is profiting enormously, Peabody has operations in Australia and will likely benefit.
Cons of Investing based on the General Outlook
- Market volatility – Fear and panic are dictating the current market and many are skeptical given the ups and downs.
- Competition from peers – There has been a preference for some of its competitors like Alpha Metallurgical resources, Arch Coal, and others that are doing slightly better. BTU is still the leading coal producer and will thrive long-term.
Growth Likelihood and Potential
The energy sector is very fundamental to our existence. Energy runs the world and this is not affected in the least in case of a recession or even a depression.
Peabody will capitalize on the pent-up demand and meet the supply shortages. It stands to achieve greatly from this.
As the old saying goes, Control the food and you control the people, control the energy and you control nations. The world is ever reliant on energy and a bull run is due in the sector.
Peabody is an amazing growth opportunity, that will explode in the coming years.
Overall verdict on Peabody
Analysts rate the stock as a buy and see it price targets as an easy double in the next couple of months.
The stock is a cheap entry and can break the ceiling once it takes off. Moving averages and oscillators are neutral on the stock.
It is an overall buy and a potential multi-bagger given its current state. It is assuredly looking bullish at the moment.
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