Peabody Energy (BTU, Financial) is going through tough times due to a prevailing weak coal market. The company’s performance has been declining, and the stock is also trading at the lower ends of the last year which is making its problem worse.
The management is looking for various steps that can help it gain market share in the future, but the recent forecasts by various analysts depict the weak coal market in the future as well which can further scare investors away from the stock. However, despite these signs, Peabody is seeing some positive contributors to its growth. Let us have a look.
Positives to watch
Peabody has pinpointed some key markets which are expected to positively impact the company’s growth. It is pleased with the increase in the exports to Australia. The demand is increasing mainly due to the rise in global steel production. The company is thinking that this demand will continue ramping up in 2015 as well, giving Peabody better growth opportunities in future. Moving ahead, Peabody is also seeing demand for seaborne metallurgical coal increasing impressively in the Asian countries including India and China. India’s economy is growing and in the past the seaborne coal imports have increased by 20% in India. Peabody is expecting the growing economy to further ramp up coal demand in India in 2015.
Moving on to China, Peabody is mainly focusing on the long-term gains as it is seeing soft demand for coal in China in the near- but for the long-term, Peabody expects the demand for coal to increase in China as the country is undergoing development and focusing on the rationalization of its domestic production. This gradual growth in the demand will be a good growth driver for Peabody in the long term.
Not only the Seaborne coal but the company is seeing a healthy picture for thermal coal demand as well. China is expected to be a key market for Peabody which can drive the demand for thermal coal. As the Chinese economy is growing the company is seeing growing needs for electricity; in fact, the electricity demands also rose by 4% in recent years. This clearly indicates the growing demand for thermal coal. But it has to face much competition with the hydro-electric power that is commanding the Chinese market as of now. But Peabody is confident that the thermal coal electricity generation will ramp up in 2015 giving Peabody ample chances to turnaround.
Conclusion
Now looking at the fundamentals, the company doesn’t have a trailing and the forward P/E due to continual losses it is making due to soft coal market. However, as the company is ascending it seems strong as a short-term investment option. So I would like to suggest the investors to surely pick Peabody Energy for short term gains.
