Hi ,
Shares of Turnaround Letter Buy recommended Peabody Energy (BTU) gained over 30% in mid-day trading. Several events are driving the surge:
- Activist investor Elliott Management signed an agreement adding two Elliott executives, an Elliott-selected industry executive and a jointly-selected (to be named) industry executive to Peabody’s board. Elliott has been a long-term holder of Peabody and currently has a 30% stake.
- Energy stocks in general and coal stocks in particular are rising sharply today after the recent sell-off.
- Peabody reported 4Q earnings that reflect the on-going weakness in coal pricing and volumes. Revenues fell 20% from a year ago but were stronger than consensus estimates. Earnings fell to a loss, although much of this was due to non-cash write-offs. Adjusted EBITDA, after removing some additional one-time benefits and costs, was $151 million, down 45% from a year ago. However, this was much stronger than the consensus estimate. Peabody plans to continue to chip away at its cost structure as the revenue remains weak.
- The company is making debt repayment the top priority. As such, its dividends and share repurchases are being suspended. Investors looked through the dividend cut to the positive cash flow benefits of about $60 million/year to Peabody’s financial strength. The company carries $732 million of cash which offset’s more than half of its $1.3 billion in debt.
We continue to rate shares of BTU as a Buy with a $15 price target.
Disclosure Note: One or more employees of the Publisher own shares of all Turnaround Letter recommended stocks, including the stocks mentioned in this note.