On Monday, BMO (TSX:BMO) Capital Markets revised its rating on Peabody Energy stock, elevating it from Market Perform to Outperform. The firm also set a new price target of $22.00 for Peabody Energy, indicating a positive outlook on the stock's future performance.
According to InvestingPro data, Peabody currently trades near $22, with analyst targets ranging from $26 to $33, and maintains a "GOOD" overall financial health score.
The upgrade comes as BMO Capital Markets anticipates improvements in Peabody Energy's product portfolio and mix. This expected enhancement is attributed to the forthcoming acquisition of Anglo American (JO:AGLJ)'s metallurgical assets, which is projected to be finalized by mid-2025, and the anticipated ramp-up of the Centurion mine in the first quarter of 2026.
These developments are seen as potential drivers for increased profitability and free cash flow over time, as well as offering opportunities for further re-rating of the stock.
Despite acknowledging the execution risks associated with these ventures, BMO Capital notes that Peabody Energy's stock has experienced a decline of more than 20% since the announcement of the acquisition. The firm believes that, as a result, the risk/reward balance has become more favorable.
Peabody Energy's stock is currently trading at an estimated 3.1 times standalone 2026 expected EBITDA, or approximately 3.0 times pro-forma, which is below the peer average of around 3.5 times.
InvestingPro analysis indicates the stock is currently undervalued, with an EV/EBITDA of 2.52x and P/E ratio of 5.25x. For deeper insights into Peabody's valuation metrics and comprehensive analysis, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.
The analyst from BMO Capital highlights the potential for Peabody's profitability and free cash flow to improve over time, which could lead to a re-rate potential. The firm's outlook suggests confidence in Peabody Energy's strategic moves and their expected contribution to the company's financial strength in the coming years.
Peabody Energy, listed on the New York Stock Exchange under the ticker NYSE:BTU, is set to undergo significant changes with the integration of new assets and the start of new operations.
BMO Capital's revised rating and price target reflect a positive stance on these upcoming developments and their impact on the company's valuation.
InvestingPro data shows the company generated $912.1 million in EBITDA over the last twelve months, with a solid current ratio of 2.32 and manageable debt-to-equity ratio of 0.12, suggesting strong financial positioning for its expansion plans.
In other recent news, Peabody Energy Corporation reported a strong performance in the third quarter, with a net income of $101.3 million and an adjusted EBITDA of $225 million, exceeding market expectations. The company also highlighted the completion of a $100 million share repurchase during the quarter. In addition, Peabody Energy clarified its coal demand forecast, indicating a projected six percent increase in coal consumption by 2030.
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