A couple of event in the last two weeks have me thinking about coal.
Today Arch Coal (ACI) said third-quarter net income more than tripled to $97.8 million, or 68 cents a share, from $27.3 million, or 19 cents a share in the year-ago period. Revenue increased to $770 million from $599 million. Wall Street analysts expected the St. Louis coal producer to earn 61 cents a share on revenue of $772 million, according to a survey by FactSet Research. Arch’s trading and optimization function reported an $18.4 million loss in the third quarter, offset by a $26.9 million income tax benefit. “Despite a near-term softening of coal demand, we remain on pace to deliver our best financial performance in company history,” Arch Coal said.
Now, last week Peabody (BTU) announced a $1B buyback that at current levels amounts to 12% of its market cap. With the Arch news, it would seem the fundamentals of the business in no way relate to the current stock price action would indicate.
Third. It was reported last week that India was in the US shopping for coal deposits.
Now, while coal demand may be softening, it has not evaporated as the share price of
both would suggest (down over 60%). When we have other nations here looking for coal, we can only assume they need much more than they have. That is good for global producers like BTU.
BTU which earned $1.37 in 2007 has earned $2.37 a share through the first nine months of 2008 and will add 12% to that down the road just through the share repurchases. Peabody trades at 9 times very conservative estimates for the remainder of 2008 and just 6 times the low end estimates for 2009 (the estimates were done before the share repurchase plan was announced).
Coal is one of those things we cannot live without. More than that, the rest of the developing world wants it really bad. It is a nice business to be in, especially when the stocks are priced at these levels..
Disclosure (“none” means no position):none
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5 replies on “Coal….Hmmm”
from what I recall, Buffett purchased Burlington Northern due to it’s importance in coal transportation..
definitely agree and been waiting patiently on the side lines to get in and build a position. Looking at ACI and BTU as you mentioned, but trying to find other names who are mainly thermal coal and coal used for energy, rather than the metallurgical coal for steel names like MEE or ANR
any others you might know of that are likened to ACI or BTU?
buffett….forgot
$pcx..
I have been think of Coal lately as well. Made me some money last year and I think I will play it via the KOL etf. Definetly on my watch list.