World's largest private-sector coal company Peabody Energy Corp. (NYSE: BTU) will report its fourth quarter earnings on January 25, 2011. In the last three quarters of FY 2010, Peabody's reported EPS exceeded analysts' consensus estimates for quarters ended March 2010, June 2010, and September 2010, by margins of 26.80 percent, 9.50 percent, and 8.80 percent, respectively.
Peabody Energy Corp. operates mines across the U.S. and Australia. In 2008, Peabody fueled roughly one-tenth of all U.S. electricity generation and more than 2 percent worldwide. The company owns majority interests in 28 coal mining operations located in the United States and Australia. In addition to its mining operations, it markets, brokers and trades coal. The company operates in four principal segments: its three mining segments and its Trading and Brokerage segment. The company's three mining segments are Western U.S. Mining, Midwestern U.S. Mining and Australian Mining.
Peabody Q3 earnings result beats analysts' estimates
For the third quarter FY 2010, Peabody reported total revenues of $1.9 billion, up 12 percent compared to revenues of $1.67 billion reported in the third quarter of FY 2009, and up 12 percent compared to revenues of $1.66 billion, sequentially. Income from continuing operations in the third quarter, were more than doubled to $280.3 million, or $0.99 per diluted share, compared to income from continuing operations of $135.5 million, or $0.49 per diluted share. Peabody's EBITDA grew for the third consecutive quarter and totaled $571.3 million, with higher results from each of the company's business segments. Operating profit rose 102 percent to $444.7 million for the third quarter, leading to cash flow from operations of $427.4 million.
As a form of energy, coal faces most of its competition from natural gas, a cleaner burning source of power. If natural gas prices fall, the entire coal industry could face a drop in revenue as power consumers turn to the cheaper form of energy. Peabody faces increased competition during times of high coal demand, and decreased competition during times of low demand. Peabody's major competitors includes: Arch Coal Inc. (NYSE: ACI) and CONSOL Energy Inc. (NYSE: CNX). In the last one year, Arch Coal has reported earnings of $0.69 per share, on revenues of $3.01 billion. CONSOL has reported earnings of $1.87 per share, on revenues of $5.05 billion. On the other hand, Peabody reported earnings of $2.42 per share, on revenues of $6.60 billion.
In comparison to the coal industry's trailing 12 months statistical data, Peabody has a P/E ratio of 24.48, which is higher than the industry's average of 19.88. The P/S ratio of the company is 2.42, much lower than the industry's P/S of 7.37. The quarterly revenue growth of the company is at 11.90 percent, and industry's quarterly revenue growth is at 15.90 percent.
Peabody lowered FY 2010, EBITDA guidance due to floods in Australia
The company revised its EBITDA full-year target of $1.7 billion to $1.9 billion, versus its previously estimated $1.85 billion to $1.9 billion in October, 2010. However, the company did not change its earnings estimate, which is forecasted to be in the range of $2.95 to $3.15 per diluted share. The company targets FY 2010 sales of 240 to 260 million tons.
Analysts downgrade Q4 earnings estimates
For the fourth quarter ending December 31, 2010, analysts' EPS estimates range from a low of $0.63 to a high of $0.84 per share, compared to the consensus estimate of $0.71 or $0.43 per share earned in year ago same quarter. Analysts' revenue estimates for the fourth quarter range from a low of $1.68 billion to a high of $1.95 billion, compared to a consensus estimate of $1.81 billion or $1.55 billion reported in the same quarter a year ago. For the quarter ended December 31, 2010, the consensus EPS forecast has been downgraded to the current estimate of $0.71 per share, from $0.81 estimated 7 days ago, which was further downgraded from $0.91 estimated 60 days ago.
Peabody increased its regular dividends by 21 percent
Through December 31, 2009, the company has repurchased 7.7 million shares at a cost of $299.6 million, leaving $700.4 million available for share repurchase under the program. On October 21, 2010, Peabody's board of directors approved a 21 percent increase in its regular quarterly cash dividend on common stock, to $0.085 per share. In the last 52 weeks, the company's stock has been trading in the range of $34.89 and $66.07. In the last one year, Peabody's stock has gained 23 percent in value to settle at $59.31 on January 20, 2011. Based on the revised EPS and considering the coal industry's key drivers, I see a one year target price of $69.
