Peabody Taking Advantage

Peabody Energy Corp. (BTU - Analyst Report) reported Q2-08 earnings from continuing operations of $0.89 per share, well above street consensus of $0.54 per share, on higher-than-expected per-ton prices, particularly from its Australian operations.

Its significant unpriced (open position) in 2009-2010 will further accelerate revenues, cash flows and earnings as Peabody locks in volumes at prices significantly higher than Q2-08 realizations in the PRB and Illinois Basin, as coal from these areas show continued strength through 2010. We are raising our '08 and '09 estimates from $2.67 to $3.15 per share and from $4.60 to $6.13 per share, respectively.

On July 21, BTU completed the $50 MM expansion project of its Wambo Coal Preparation Facility. This marked the last phase in a multi-year expansion of the company’s Wambo facility in Australia. When fully ramped up, the Wambo complex can produce and aggregate 6.5 MM tons per year.

Peabody has industry-leading production capabilities in the basins it operates in and an open position for '09/'10 tonnage. It also has an advantage over its competitors in that its Australian operations are in close proximity to several developing countries where demand for steel and electricity is growing rapidly.

This will allow the company to take advantage of its leverage in the basins it operates in at a time when supply and demand fundamentals suggest that prices will remain elevated for some time. For these reasons, Peabody’s market multiples typically trade at a premium to its peers. Although the macroeconomic picture looks extremely favorable, current valuations indicate that coal prices are at or near peak levels.

Read the full analyst report on BTU

Read the full analyst report on BTU