As detailed on previously, recent reports from BP (NYSE:BP), Exxon Mobil (NYSE:XOM), and the International Energy Agency have all predicted an increase in the demand for coal.
For some, that could be difficult to see with how securities in the industry have been performing: over the past year, Market Vectors Coal (NYSE:KOL), the exchange traded fund for the sector, is down by more than 30 percent. For long-term investors, however, there are three reasons to be bullish about Peabody Energy (NYSE:BTU).
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It is always wise to go with the best, and that is Peabody Energy in the coal industry.
It is not only the biggest private concern in the coal sector, but also the most highly regarded. Now trading at $16 a share, Goldman Sachs recommended buying Peabody Energy last November as it expected the price to be around $26 in May 2014. While it has a long way to go to reach that stage, the target price from the analyst community is $22.75.
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There are bullish trends in earnings for Peabody Energy.
Earnings growth per share is up nearly 40 percent this year. It is expected to increase in the triple digits for next year. That is coming off a falling earnings-per-share growth rate of nearly 20 percent for the last five years.
Macro global trends are bullish, too, for Peabody Energy.
Reports from BP, Exxon Mobil, the International Energy Agency, and others have the demand increasing for coal. That is a result of most of the growth in energy consumption in the years ahead coming from China, India, and other emerging market nations. Coal is expected to replace oil as the most widely-used fuel around the world.
Legendary investor Warren Buffett has stated that it is better to buy an excellent company at a fair price than a fair company at an excellent price.
Based on the consensus of the analyst community, Peabody Energy is trading for well under a fair price. It also pays an above average dividend so that patient shareholders are rewarded with a steady income stream, too.
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