Peabody Energy Corporation (BTU): An Energy Giant Undervalued by 40%

On the other hand, analysts expect Arch Coal Inc (NYSE:ACI). to report a negative EPS of $1.15 in 2013. It’s yielding a dividend of 2% on its stock and has a gross margin of 19%, which is quite less than its top industry peers. It has a mean recommendation of 2.7 on the sell side, showing that it isn’t as attractive as Peabody Energy and Consol Energy. Therefore, we remain neutral on Arch Coal at this point in time.

Conclusion

As thermal coal’s price is expected to remain lower than natural gas in the coming years; its demand is bound to get higher, ensuring more earnings for Peabody Energy. In the case of Australia, higher prices for steel-making coal plus lower production costs would add further income for the energy giant. Moreover, met coal prices are also expected to rise slightly this year, thanks to high steel prices in China. Peabody’s Macarthur Coal is all set to export more steel-making coal in 2013 and 2014, especially to the Asian countries. As Mongolia is the largest steel-making coal exporter to China, company’s Tavan Tolgoi coal project in Mongolia remains the key in 2014. The bottom line is that Peabody Energy is expected to do really well in the coming years, and remains one of the most attractive buys in the energy sector. In short, we recommend buying Peabody Energy for an upside of 40%.

The article An Energy Giant Undervalued by 40% originally appeared on Fool.com.

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