Why Peabody Energy Corporation Shares Could Stall

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Peabody Energy  slipped 1% in premarket trading Monday after Deutsche Bank downgraded the coal miner from buy to hold.

So what: Along with the downgrade, analyst Jorge Beristain lowered his price target to $19 (from $23), representing about 14% worth of upside to Friday's close. So while contrarian traders might be attracted to Peabody's price weakness in recent months, Beristain's call could reflect a sense on Wall Street that demand headwinds are just too strong to allow for a significant rebound.

Now what: According to Deutsche, Peabody's risk/reward trade-off is pretty balanced at this point. "Upstream miners continue to be bogged down by China's muted performance," said Beristain. "Weaker currencies have also robbed certain commodities of prior price-support arguments and it is a Mexican stand-off to see who shuts capacity first in met coal. Company headwinds continue to be balance sheets and resource nationalism trends." Of course, with Peabody shares now off more than 20% from their 52-week highs and sporting a dividend yield of 2%, those short-term concerns might be providing patient Fools with a solid long-term opportunity.

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The article Why Peabody Energy Corporation Shares Could Stall originally appeared on Fool.com.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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