In the vast landscape of stock market indicators, one signal has recently caught the attention of investors eyeing Peabody Energy Corporation (BTU) is the emergence of a “death cross” on its chart. This ominous pattern, where the 50-day simple moving average crosses below the 200-day simple moving average, has historically spelled trouble for the stock. Notably, a similar occurrence in late April 2023 preceded a significant downturn, with the stock plunging over 20% in the subsequent month.
Valued at $2.8 billion by market cap, Peabody Energy specializes in mining and marketing low-sulfur coal, primarily catering to electric utilities, while also engaging in coal and emission allowances trading, with operational mines spanning across Arizona, Colorado, New Mexico, Wyoming, Illinois, Indiana, and Australia.
With the stock already down 16.5% from its early March highs and showing a roughly 6.5% year-to-date decline, investors may question whether this downward trend is now set to continue. Let’s have a closer look.
How Did Peabody Energy Perform in Q1?
Peabody Energy reported its Q1 earnings results on May 2. In the first quarter of the year, the company posted an adjusted EBITDA of $160.5 million and a net income of $39.6 million, marking a significant decline from the prior-year quarter’s adjusted EBITDA of $390.6 million and net income of $268.5 million. The income decline was primarily attributed to reduced revenue stemming from the absence of unrealized mark-to-market gains from derivative contracts linked to forecasted sales in the current year, along with decreased seaborne coal pricing and volume declines in the U.S. thermal segments.
Free cash flow available stood at negative $4.4 million in the first quarter, marking a significant decline compared to the levels observed in the preceding years. Management also mentioned on the Q1 conference call that free cash flow is expected to be more restrained in Q2, due to tax payments and other factors, but they anticipate significantly higher free cash flow in the second half of the year. At the close of Q1, the company held a net cash position of $838 million.
During the Q1 earnings call, management projected that seaborne thermal volumes would rise to 4.1 million tons in the second quarter, with costs anticipated to stay consistent with the previous quarter, ranging between $45 and $50 per ton. Seaborne metallurgical volumes are forecasted to reach 1.9 million tons in the current quarter, marking an increase of 500,000 tons compared to the first quarter, while costs are anticipated to improve to $110 to $120 per ton, in line with the company’s full-year guidance.
Other U.S. thermal coal shipments of 3.8 million tons are also anticipated to be higher than the previous quarter, driven by recent contract signings for 1.8 million tons to be delivered this year, with expected costs ranging from $44 to $48 per ton in the quarter.
“With an implied stronger second quarter, we are reaffirming full-year guidance,” said Chief Financial Officer Mark Spurbeck.
For the second quarter, Peabody Energy stock analysts predict earnings of $0.54 per share, implying a 53.45% year-over-year decrease. Moreover, Wall Street expects BTU’s Q2 revenue to drop 20.68% year-over-year to $1.01 billion.
BTU Stock Valuation and Dividend Yield
Priced at 8.55 times forward earnings and 0.67 times sales, the stock trades at a premium compared to its five-year averages, but remains below the energy sector medians.
Peabody Energy recently declared a quarterly dividend of $0.075 per share, in line with the previous dividend, payable to its shareholders on June 5. It offers an annualized dividend of $0.30 per share, resulting in a yield of 1.33% - notably lower than the sector’s median yield of 3.69%.
Options Market Sentiment on Peabody Energy Stock
Looking at the June 21, 2024, option chain for Peabody Energy stock, let’s figure out options market sentiment by comparing the open interest levels.
At the $22.00 strike price, nearest to the current share price, the put-call ratio stands at 0.97, indicating a slightly stronger preference for call options and suggesting a fairly neutral sentiment in the options market regarding the stock.
What Do Analysts Expect For BTU Stock?
Peabody Energy stock has a consensus “Strong Buy” rating. Out of the four analysts offering recommendations for the stock, three analysts recommend a “Strong Buy,” and one gives a “Hold” rating. The average analyst price target of $27.50 implies a potential upside of about 21% from current price levels.
The Bottom Line on BTU Right Now
Considering bearish technical indicators, like the reliability of the death cross pattern, and concerning fundamental factors - such as BTU's lackluster Q1 performance, anticipated further declines in quarterly revenue and profit, and neutral options market sentiment - it's prudent to steer clear of the stock at this time.
On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
