Still Banking on King Coal

08/10/2010 2:54 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

If China is the story in coal—and I think it is, since China is now the number-one energy consumer and uses about three times as much coal as the United States does—then Peabody Energy (NYSE: BTU) is the story among coal companies.

In reporting its second quarter earnings, the company said it expects global net coal imports to grow by 30% in 2010.

China is the driver of demand.

But the country isn’t alone. India’s coal imports are up 22% in 2010, and Peabody estimates that imports will finish the year up 20% from the total for 2009.

In January, Peabody forecast that it would sell 240 million to 260 million tons of coal in 2010, compared to 244 million tons in 2009, because of increased demand in Asia.

Peabody, the largest US coal producer, has been gradually adding assets in Australia in an effort to move closer to the fastest-growing end markets. Peabody projects that it will sell 27 million to 29 million tons of Australian coal in 2010. That’s up from an earlier forecast of 26 million to 28 million tons.

Someday coal may hit the wall, because the world’s countries have decided to implement an enforceable global climate change program to reduce carbon emissions, but Peabody hasn’t seen any effects from the half-hearted (or less) efforts so far.

Coal is actually gaining market share at utilities, and consumption in power generation is up 6% through the first half of 2010 from the same period of 2009. Thanks to the increased demand, stockpiles look like they’ll be down to normal levels by the end of 2010. That should help prices that Peabody already calls good.

In its July 20 second quarter earnings report, the company beat Wall Street earnings estimates by six cents a share, reporting 69 cents a share, and missed on revenues by $20 million, reporting $1.66 billion. Peabody confirmed earnings guidance for all of 2010 of $2.60 to $3.15 a share.

As of Tuesday, August 10, I’m adding Peabody Energy to Jim’s Watch List on Jubak Picks. It traded just above $47 in Tuesday afternoon trading.

Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.

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