Peabody Troubles Could Harm Joy Global's Ability To Hit Guidance

Peabody Energy Corporation BTU shares are down 43.6 percent in Wednesday’s trading session after a new filing from the company disclosed that it may not be able to avoid bankruptcy. In the wake of the bad news, Axiom analyst Gordon Johnson sent a new email to investors explaining the negative impact that the Peabody news could have on Joy Global Inc. JOY.

According to Johnson, Joy Global’s OEM revenues have historically had an 87.1 percent R^2 correlation to the mining capex of the “Big 5” U.S. coal miners: Peabody, Arch Coal, CONSOL Energy Inc. CNX, Alliance Resources Partners, L.P. ARLP and Cliffs Natural Resources Inc CLF.

“Along these lines, we feel the announcement by BTU today could have incrementally negative implications for JOY’s ability to achieve its FY16 guidance provided 3/3/16,” Johnson explains.

Related Link: Joy Global Might Be Making The Same Mistake It Made Last Year, Says Axiom

Joy Global certainly wouldn’t be the first U.S. coal miner to go bankrupt in recent years. Arch Coal, Patriot Coal, Walter Energy and Alpha Natural Resources have already fallen victim to the commodity downturn.

CONSOL has been actively transitioning away from the coal business and concentrating on natural gas. On Feb. 29, the company announced the sale of its Bruchanan coal mine in West Virginia and the suspension of its $0.01 quarterly dividend.

Disclosure: the author is long CONSOL.