Dan Rice Peabody Energy Corp BTU-N TOP PICK Apr 23, 2004

Probably one of the biggest coal producers. Coal has come under pressure like a lot of commodities. Expects China will do something. So as soon as growth in China starts to pick up, certainly by the 4^th quarter this year, coal prices will pick up.

A lot of bad news is priced into the coal sector. You have to wait for the lows to confirm themselves.

(Market Call Minute.) They are swimming upstream here because long-term coal is going to be a problem, and there’s a big push to replace with natural gas.

When stocks act positively on bad news that is always a great indicator that maybe the news has already been discounted in the market place. He looked at this one. If natural gas prices continue to move higher, coal does represent an attractive alternative. It is always going to come down to the economics. A very strong lobby and very regionally focused industry. There is going to be a big, big push to keep jobs. This is something you could look into.

A coal company that stands out for quality of the balance sheet. They also have operations in Australia. Somewhat diversified by having some oil/gas assets. Very strong balance sheet and will be a survivor. Hasn't bought this yet as he doesn't have the confidence that things are poised to turn in the next year or so. If you were going to buy coal it would be this one.

Coal prices vary by grade, rank, mining method and region. There are regional differences, as transportation is a high cost. But pricing standards are not quite as defined as the oil market. There are simply a lot more regional prices. BTU did miss estimates in the 2Q, with EPS at $1.16 vs $1.63 expected. Sales matched estimates. BTU does see prices rising with a build up of inventories by customers expected in the second half. BTU remains a classic cyclical value stock, with P/E less than 5X now, an OK dividend and balance sheet with net cash of $700M. Free cash flow was $1.6B in the past year. It has started a $1B buyback but we do note the total number of shares has increased since 2019. If it does complete its buyback though the company will essentially be moving towards privatization, as that would be 1/3rd of its market cap. Investors are concerned about a recession, but the stock seems priced for that already, certainly. Coal remains a pariah, but met coal could still do well if/when the global economy strengthens (China, lower rates?). The outlook for thermal is perhaps less robust, but BTU still generates substantial profits/earnings at low prices. We note it has lost lots of money in various years of the past decade, but the balance has massively improved since those years. Debt was more than $8B, for example, in 2016 vs net cash now as noted. Analysts do expect lower earnings in 2023 and 2024 so it is hard to get too excited here, but the stock is certainly priced right.
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Is one of the big coal companies and trades cheaply, but it trades like a steel company, not a coal company.