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Investing.com - UBS initiated coverage on Peabody Energy (NYSE:BTU) with a Neutral rating and a $14.00 price target on Tuesday, below the current trading price of $14.93. According to InvestingPro data, analyst targets range from $16 to $23, suggesting potential upside.
The investment firm sees balanced risk versus reward for the coal producer, noting that Peabody’s current operations generate robust free cash flow and offer attractive leverage to thermal and metallurgical coal prices. The company maintains a strong financial position with a "GREAT" Financial Health score on InvestingPro, supported by a healthy current ratio of 2.36 and modest debt-to-equity of 0.11.
UBS’s base case assumes the Anglo coal transaction will close in the second half of 2025 on slightly more favorable terms to Peabody, with the Moranbah mine fully restarting in the fourth quarter of 2025 and reaching steady state in 2026.
The firm expects Peabody to generate no free cash flow for shareholders for approximately three years due to deferred Anglo coal outflows, and models that the Grosvenor mine will not restart over the next three years.
UBS also noted that Peabody may decide to withdraw from the Anglo transaction due to the fire at Moranbah, which the firm views as a potential positive catalyst assuming there is no future liability.
In other recent news, Peabody Energy Corporation has reported a Material Adverse Change affecting its planned acquisition of steelmaking coal assets from Anglo American (JO:AGLJ) Plc. The complications at the Moranbah North Mine, which has been inactive since a gas ignition event, have cast doubt on the acquisition’s value. Peabody has indicated the possibility of terminating the agreements with Anglo American if the issue is not resolved in a timely manner. The resolution of this situation is crucial for the completion of the acquisition, initially expected to enhance Peabody’s portfolio.
Additionally, Peabody has secured a multi-year contract to supply Associated Electric Cooperative Inc. with seven to eight million tons of coal annually for at least seven years. This coal will be sourced from Peabody’s North Antelope Rochelle Mine in Wyoming to meet the fuel needs of power plants in Missouri. The agreement underscores the continuing role of coal in meeting rising electricity demands in the U.S. Peabody’s ongoing partnership with Associated Electric Cooperative aims to reliably and affordably address growing energy needs.
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