The company still lost money for the year even after removing the one-time charge, but it has plenty of financial liquidity. And, the company is looking to export more coal to high-demand countries like China and India.
The tough coal market led to a large dividend cut. However, that provides potential upside for income seekers since the dividend is likely to ratchet higher assuming performance improves. The shares currently yield around 2.9% and trade well below book value. This year will probably be a tough one, but if demand and prices pick up, Arch Coal Inc (NYSE:ACI) shares should respond quickly.
Going Global
Unlike Alliance and Arch, Peabody Energy Corporation (NYSE:BTU) is a large U.S. producer and has material assets overseas. Notably, it has operations in Australia that provide easy access to Asia. That’s an important level of diversification since Asian markets aren’t as down on coal as a fuel as is the United States. That said, slowing economic growth in the region has placed a drag on demand there, too.
The company remained profitable until 2012, when, like Arch Coal Inc (NYSE:ACI), profits fell dramatically due to one-time costs, including non-cash asset impairment charges. Unlike Arch Coal Inc (NYSE:ACI), however, Peabody Energy Corporation (NYSE:BTU) would have earned over $2.60 a share without the charges. So, despite the difficult year, the company didn’t cut its dividend. It lost about a dime a share in the first quarter.
As coal markets around the world improve, Peabody Energy Corporation (NYSE:BTU) is well positioned to take advantage of the recovery. Although the 2% dividend yield isn’t large, that it hasn’t been cut it is a clear sign of strength. The shares are trading a little under book value, so they aren’t as good a deal as Arch Coal Inc (NYSE:ACI). That said, Peabody Energy Corporation (NYSE:BTU) is better positioned for a recovery.
Hate on Coal
The market pretty much hates coal today. That’s understandable, but is probably overdone. Investors looking for an industry leader that’s still performing well should consider Alliance. Arch has taken some big hits from the tough coal market, but offers notable turnaround potential. Peabody Energy Corporation (NYSE:BTU), meanwhile, is a globally diversified option that is struggling, but holding its own.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Alliance Resource Partners, L.P.. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Another Reason to Like Coal Now originally appeared on Fool.com is written by Reuben Brewer.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
