NEW YORK (AP) -- Shares of Peabody Energy Corp. fell to their lowest price in more than four years Monday and Stifel Nicolaus cut its earnings estimates, citing lower coal prices and higher-than-expected costs.
THE SPARK: Analyst Paul Forward said that while the coal company's first-quarter results were better than expected, reduced seaborne thermal coal prices, lower assumed income from equity affiliates and expenses will cut into profits for the full year.
THE BIG PICTURE: The coal industry as a whole has struggled amid continued soft demand that has driven down prices as many utilities turned to cheaper natural gas for their power-producing needs. The industry is counting on an uptick in natural gas prices as the fuel is used more, and that is happening already. Natural gas prices have jumped since the beginning of the year.
Peabody, the world's largest private-sector coal producer, on Thursday posted a quarterly loss on lower U.S. shipments and prices for its Australian coal, adding that it may see more of the same in the current quarter.
THE ANALYSIS: Forward, who backed his "Buy" rating and $30 price target for the stock, attributed the better-than-expected first-quarter results to lower costs in Australia and better profitability in the Illinois basin.
Forward cut his 2013 profit prediction for Peabody by 17 cents to 48 cents per share. He also cut his 2014 profit prediction by 15 cents to $1.95 per share. Analysts polled by FactSet expect profits of 17 cents and $1.59 per share for 2013 and 2014, respectively.
The analyst said that with 40 percent of its planned 2014 production yet to be priced, Peabody would likely benefit if a utility stockpile decline results in a recovery in thermal coal prices. But he said Australia is a drag on the company's results given the continued lackluster demand for coal exports there.
THE SHARES: Down 50 cents, or 3 percent, to $18.69 in midday trading, after dropping as low as $18.22 earlier in the day and marking their lowest price since December 2008. Since the beginning of this year, Peabody shares have fallen 28 percent.
- Commodity Markets
- natural gas prices