Yesterday, the black days of coal suddenly brightened up despite downbeat quarterly results from Consol Energy (CNX) and Peabody (BTU). Coal producer Peabody missed on both lines and reduced the guidance. Consol Energy too fell shy of the Zacks Consensus Estimate on both counts. Both companies reported on July 28 before the market opened (read: Green & Dirty ETFs to Watch on Clean Climate Push).

Generally, such a situation results in a decline in share price, but these two coal stocks, especially Peabody took the investing world by surprise and showered gains on investors and benefitted the entire coal space and the coal ETF. BTU was up 14.15% in the key trading session of July 28 though it shed 3.3% after hours. CNX added 2.3% yesterday. The duo helped the pure-play coal ET, Market Vectors Coal ETF (KOL) to fetch a return of 3.3% on July 28.
Peabody’s loss of 58 cents per share in second-quarter 2015 was marginally narrower than the Zacks Consensus Estimate of a loss of 59 cents. Peabody had posted a loss of 28 cents in second-quarter 2014.  Peabody’s quarterly revenues of $1.34 billion decreased 23.8% year over year and missed the Zacks Consensus Estimate of $1.49 billion by 10.1%. For 2015, the company lowered the total sales target in the range of 225–245 million tons from the earlier-projected range of 235–255 million.

On the other hand, diversified fuel producer CONSOL Energy reported an adjusted loss of 37 cents per share for the second quarter of 2015. The Zacks Consensus Estimate was earnings of a penny. The company had reported earnings of 7 cents per share in the second quarter of 2014. CONSOL Energy’s quarterly revenues declined 30.8% from the year-ago quarter to $648.9 million. The top line also lagged the Zacks Consensus Estimate of $795 million by 18.4%.

What Caused Optimism?

Apparently, stock market participants are hunting for the reasons that jazzed up the two stocks.
Citigroup analysts argued that even after dividend removal and lackluster results, Peabody is structurally different from its peers due to its approximately $670 million potential of annual cash flow improvement in 2017 from 2015. Such a declaration from a sought-after brokerage house might be the reason for the stock’s outperformance.

On the other positive front, Peabody is aggressively implementing cost-saving initiatives, has cut back on production and restructured its organization via lay-offs. The job cut is likely to save $40─$45 million per year. Cost containment efforts are also paying off for the company. 
Coming to Consol, the rise in shares looks more sensible as the company has been shifting its focus to natural gas from the more struggling coal space. This diversified energy producer is well-placed to cash in on any pickup in commodity prices (see all Energy ETFs here).

ETF Impact

While we are not hopeful of the sustainability of this upbeat momentum, as of now the $64 million-coal ETF (KOL) was the clear beneficiary of this sudden euphoria. Both Consol and Peabody have decent exposures in the coal ETF. Consol takes the fourth spot with 6.05% exposure while Peabody accounts for just 1.2% weight. The 31-stock fund holds a Zacks ETF Rank of #5 (Strong Sell) with a ‘High’ risk outlook. The fund is down over 33% so far this year (read: 4 Worst Performing U.S. Equity ETFs So Far in 2015).
 
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