Beaten-Down Energy Shares Peabody, Consol, Arch Coal Rally

Updated on
  • Consol rallies 17 percent to lead S&P 500 energy gains
  • Companies fell average 87 percent in first 10 months of 2015

A handful of energy companies that have been among the stock market’s biggest losers in 2015 saw their shares rally Monday as energy producers led advances in U.S. equities.

Peabody Energy Corp., Consol Energy Inc. and Arch Coal Inc, down an average of 87 percent in the first 10 months of the year, surged, with Consol gaining 17 percent, the most since 2008. More than $8 billion in market value has been erased in the three stocks since the end of last year as the prices for coal, natural gas and oil have been routed.

“These stocks have been so beaten down that they’re picking up a rebound as things come back,” said Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, which has $3 billion under management. “Based on what we saw out of China with the weaker-than-expected manufacturing, you’d expect these companies to be getting hit harder. But they’re just really oversold and getting a bounce up.”

The gains came amid a rally in major energy stocks in the Standard & Poor’s 500 Index, with Chevron Corp. and Exxon Mobil Corp. surging at least 3 percent. The S&P 500 advanced 1.2 percent by 4 p.m. in New York, to the highest level since Aug. 10.

This year’s drubbing has left the stocks at depressed levels relative to earnings. Consol, the coal and gas producer based in Canonsburg, Pennsylvania, trades for about 7.9 times
earnings, compared with an average of more than 38 in the past 10 years. 

Peabody, the St. Louis-based coal miner, fetches 17 times earnings, compared with 26.9 since 2005, while Arch, by far the smallest of the three with a market capitalization of $37 million, trades for 6.2 times earnings, compared with a decade average of 40.6.

Consol sank 21 percent on Oct. 27 after reporting a wider-than-forecast loss of 28 cents per share for the third quarter. The stock been among those that dragged down the portfolio of hedge fund manager David Einhorn, who last week affirmed his confidence in the company. 

A market that is “myopically focused” on the short-term prospects for the prices of Appalachian coal and natural gas is overlooking Consol’s potential, he said.

"Everything has been rallying as we see more money come into the U.S. market," Seth Williams, a director of trading at Tudor, Pickering, Holt & Co., a Houston-based investment bank, said by phone. "With coal companies, it’s definitely a short covering rally, magnified by a move in energy as a whole."

— With assistance by Jeremy Herron

(Updates with closing prices.)
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