Peabody's New Coal Backup - Analyst Blog

Coal producer Peabody Energy Corporation (BTU) signed a deal to avail coal from PT Supra Bara Energi (SBE) in Indonesia.

The coal sourced from SBE's mine in East Kalimantan will be exported to customers located in the Asian Pacific Rim through Peabody's COALTRADE international Singapore trading hub. Over the next five years, Peabody plans to supply several million tons of coal from SBE's Indonesian mine.

Indonesia is the fastest-growing supplier of coal to the Asian countries in the Pacific Rim.  More than 90% of the estimated 3.5 billion metric ton coal demand growth is expected to come from this region in the next 20 years.

Peabody has been active in catering to the growing coal demand in the Asian countries. The company's deal in Indonesia demonstrates the strength in its leading coal trading and brokerage platform to serve the enormous demand growth in China, India and other key Asian markets.

The Asia-Pacific region has been driving the global demand for coal, and Indonesia is the world's largest thermal coal exporter. Going forward, Peabody looks to continue to grow its presence in Indonesia.

Peabody Energy's third-quarter results were encouraging with earnings outperforming and revenues matching the consensus. The company expects its 2010 adjusted earnings in the range of $2.95 - $3.15 per share.

The Zacks Consensus Estimates for fourth-quarter 2010, fiscal year 2010 and fiscal year 2011 are 90 cents per share, $3.12 per share and $4.60 per share, respectively.

Peabody's future growth is mainly linked to increased demand for energy in the Asian economies such as China and India, and the recovery of the steel markets in developed economies such as Japan, South Korea and Taiwan. This provides Peabody with an edge over others with its strong China-India-Australia connection. The company primarily competes with Arch Coal Inc. (ACI) and CONSOL Energy Inc. (CNX).

Based in St. Louis, Missouri, Peabody Energy is involved in the exploration, mining and production of coal for its global consumers. Peabody serves customers across six continents and has trading and business offices in Indonesia, Singapore, China, Australia, the United Kingdom, Venezuela and the United States. With 2009 sales of 244 million tons and $6 billion in revenues, Peabody fuels 10% of U.S. power and 2% of worldwide electricity.

Peabody Energy currently retains a Zacks #3 Rank (short-term Hold rating). We maintain our long term Neutral rating on the stock.

 
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