Peabody Energy Corporation (BTU) in St. Louis, Miss., is in the coal mining business, and it owns an interest in seventeen active coal mining operations located in the U.S. and Australia. It also markets and brokers coal from other coal producers, both principal and agent, and trades coal and freight-related contracts. In comparison , American Resources Corporation (AREC) in Fishers, Ind., supplies raw materials to the infrastructure and electrification market. It operates through the ethanol and byproducts and refined coal segments. It focuses on the extraction and processing of metallurgical carbon and reprocessed metal to be recycled.
Because the global economic recovery is expected to remain strong this year, total energy consumption is expected to rise. In addition, the disruption in gas supply due to the import bans on the largest exporter, Russia, could lead to a rise in the demand for coal this year. Global electricity consumption rebounded in 2021, exceeding 2019 levels. And according to the International Energy Agency (IEA), worldwide coal demand could climb to an all-time high in 2022, breaking the previous high hit in 2013. Coal demand could rise to an all-time high of 8,031 MT in 2024. Therefore, both BTU and AREC should benefit.
BTU stock has gained 426.8% in price over the past year, while AREC has lost 53.7% over the same period. BTU’s 97.2% gains year-to-date are significantly higher than AREC’s 11.6% returns. Also, BTU is the clear winner with 127.2% gains versus AREC’s negative returns in terms of the past nine month’s performance.
Latest Developments
On March 1, 2022, BTU announced the launch of a renewable energy development company, R3 Renewables LLC, in a joint venture with Riverstone Credit Partners and Summit Partners Credit Advisors. The new company seeks to develop more than 3.3 GW of solar PV and 1.6 GW of battery storage capacity over the next five years.
On Jan. 11, 2022, AREC announced that its wholly-owned subsidiary, American Rare Earth LLC, had entered a strategic partnership with the venture capital investment arm of The Heritage Group. Mark Jensen, CEO of AREC, said, “This partnership will allow us to incorporate value-added partners throughout the supply chain furthermore expeditiously and ensures a successful pathway for our shared vision.”
Recent Financial Results
BTU’s revenues increased 71.5% year-over-year to $1.26 billion for the fourth quarter, ended Dec. 31, 2021. The company’s net income attributable to its common shareholders came in at $513 million, compared to a $129.20 million net loss in the year-ago period. Also, its adjusted EBITDA increased 330.6% year-over-year to $444.40 million.
AREC’s revenues increased 855% year-over-year to $2.81 million for the third quarter, ended Sept. 30, 2021. The company’s net loss came in at $8.91 million, compared to $0.12 million in net income in the year-ago period. Also, its adjusted EBITDA loss was $1.36 million, compared to an adjusted EBITDA of $2.80 million in the year-ago period.
Expected Financial Performance
Analysts expect BTU’s revenue to increase 33.9% in the current year but decline 10.4% next year. The company’s EPS is expected to grow 351.9% in the current quarter and 867.9% next quarter.
In comparison, AREC’s revenue is expected to increase 2,990.6% in the current year and 472% next year. Also, its EPS is expected to decline 14.3% in the current year but increase 97.5% next year.
Profitability
BTU's trailing-12-month gross profit margin is 23%, compared to AREC’s negative value.
Furthermore, BTU’s trailing-12-month ROTC and ROTA are 8.15% and 7.28%, respectively, compared to AREC’s negative values.
Valuation
In terms of forward EV/Sales, AREC’s 6.31x is 764.3% higher than BTU’s 0.73x. Furthermore, AREC’s 5.42x forward Price/Sales is 834.4% higher than BTU’s 0.58x.
Thus, BTU is more affordable here.
POWR Ratings
BTU has an overall B rating, which translates to Buy in our proprietary POWR Ratings system. In contrast, AREC has an overall F rating, which equates to a Strong Sell. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
BTU has a Value grade of B. This is justified because the stock’s 1.50x trailing-12-month Price/Book is 18.9% lower than the 1.85x industry average. In comparison, AREC has an F grade for Value. This is in sync with its 44.18x trailing-12-month Price/Book, which is 2,283.6% higher than the 1.85x industry average.
Of the 11 stocks in the A-rated Coal industry, BTU is ranked #2. However, AREC is ranked last.
Beyond what I have stated above, we have also rated the stocks for Growth, Momentum, Stability, Sentiment, and Quality. Click here to view all the BTU ratings. Also, get all the AREC ratings here.
The Winner
The demand for coal is expected to witness solid growth in the coming months, benefiting BTU and AREC. However, BTU we think is a better investment bet due to its lower valuation and better profitability.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Coal industry here.
BTU shares were trading at $19.27 per share on Tuesday morning, down $0.59 (-2.97%). Year-to-date, BTU has gained 91.36%, versus a -11.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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