Freedom presented an investment idea on Peabody Energy with a 16% upside potential

Higher output at the Centurion mine in Australia and favorable coal prices could support Peabody Energy (NYSE: BTU) shares, Freedom Broker analyst Vitaliy Kononov believes. In the investment idea dated October 22, he set a target price of $26—about 16.1% above the $22.40 price at the time of the analysis. The idea’s horizon is through December 22, 2026.

Peabody Energy mines coal in the U.S. and Australia. The company supplies thermal coal to power plants, and metallurgical coal, including coking coal, to steel producers.

 

Centurion recovery could support sales

One of the key growth drivers Freedom cites is improved performance at the Centurion mine in Australia’s Bowen Basin. Its designed capacity is 4.7 million tonnes of premium coking coal per year.

According to the data cited in the investment idea, output at the site increased from 117 thousand tonnes in July to 222 thousand tonnes in August. Saleable coal yield—the share of product suitable for sale after processing—rose from 59% in Q2 to 69% since the start of Q3.

Management expected to pass through a known geological fault zone by mid-October and bring the mine closer to a steady operating pace in Q4. Confirmation that these plans have been executed will be an important benchmark for investors.

The sales forecast for Centurion for the second half of the year is 1.5–2 million tonnes. Taking into account expected Q3 sales, this implies shipments of roughly 0.8–1.5 million tonnes in Q4.

High coal prices support exports

According to a Freedom report, the Newcastle thermal coal futures contract on October 16 traded at around $150.40 per tonne—about 45% higher than a year earlier.

The analyst links price support to expensive liquefied natural gas, supply disruptions through the Strait of Hormuz, reduced exports from Indonesia, and preparations for the winter season.

Under these conditions, coal remains a competitive fuel for operating power plants in Asia. For Peabody, this creates a favorable environment in the export parts of its business.

Lower unit costs could improve margins

An additional argument in the investment idea is the expected reduction in unit costs. In the seaborne metallurgical segment, the company forecast costs of $130–140 per tonne versus $155 in the prior quarter.

In the U.S. Powder River Basin, shipments are expected to recover from 16.4 million to 22 million tonnes, while costs decline from $14.06 to $11.75–12.25 per tonne.

Achieving these targets could support profitability. However, the positive effect depends on actual mining and delivery volumes, as well as on maintaining favorable prices.

Reporting will be the nearest test of the investment idea

Peabody plans to present Q3 results on November 4. The date is indicated in the company’s investor calendar.

After two weak quarters, Kononov allows for a positive revaluation of the shares if the recovery in production and cost reductions are confirmed. At the same time, Freedom’s own forecast for adjusted EBITDA is about $120 million—below the consensus range of $124–136 million cited in the report. Thus, beating market expectations is viewed as a possible favorable scenario.

Idea terms and key risks

The entry level is $22.40, the target price is $26. The sell level to limit losses is set at $20, about 10.7% below the entry price. The idea’s risk is described as high, and the recommended position size is 2% of the portfolio.

The main risks are associated with delays in Centurion’s recovery, failure to meet shipment plans, and a decline in coal prices.

Earlier, the “Finansist” magazine on the Freedom Broker website discussed the expansion of the use of different energy sources amid the crisis. In an interview, Energy Aspects noted that governments are considering a more flexible mix of coal, gas, and other fuels. This context helps explain support for coal demand; however, the outcome of the Peabody investment idea will also depend on the company’s execution of its own production plans.

Not an individual investment recommendation.