Talk about a fall from grace. Peabody Energy Corporation (NYSE:BTU) used to be the bellwether coal name in the U.S. and arguably the world. That was two years ago when the CEO, the de facto spokesperson for the industry, liked to talk about the “Coal Supercycle.” At $18 and change, Peabody Energy Corporation (NYSE:BTU) is very close to an all-time low. The last time the stock price was this low was at the bottom of the 2008-2009 financial crisis.
As bad as things are in the coal sector, it’s still shocking to note that from a high of $84 per share, Peabody Energy Corporation (NYSE:BTU) is down almost 80%. With the stock at $18.40, is it a buy? No. Peabody Energy Corporation (NYSE:BTU) is saddled with too much debt ($6 billion) with little hope of paying it down. If coal fundamentals rebound next year, perhaps Peabody would become attractive.
When There’s Blood in the Streets It’s Time to Buy
The sentiment surrounding Peabody Energy Corporation (NYSE:BTU) is horrible, and the proverbial blood in the streets is flowing. For a rebound in Peabody Energy Corporation (NYSE:BTU) and coal peers, there has to be a catalyst, but there simply isn’t one. Take premium low-vol coking coal. From a high quarterly benchmark price of $330 per metric tonne in 2011 it’s now offered in the spot market at $140 per tonne, down ~60%.
Foolish investors take note–even an increase in this key coking coal benchmark price by a third to about $180 would not be enough to repair the damage done to Peabody, Arch Coal Inc (NYSE:ACI), and Alpha Natural Resources, Inc. (NYSE:ANR), . All three made top-of-the market acquisitions that proved to be big mistakes. In 2011, Arch Coal Inc (NYSE:ACI) acquired International Coal for its prospective coking coal pipeline. That pipeline is not worth anywhere near the billions of debt issued to pay for it. It may never be.
Alpha Natural Resources, Inc. (NYSE:ANR) acquired Massey Energy the same year. Massey had serious problems, but Alpha simply could not resist, and now Alpha Natural Resources, Inc. (NYSE:ANR) is now choking on $3.4 billion of debt. Walter Energy, Inc. (NYSE:WLT), also near an all-time low, acquired Canadian company Western Coal Corp. in 2011. The legacy Western assets continue to be the highest cost mines in Walter Energy, Inc. (NYSE:WLT)’s portfolio. Those assets are worth zero at current coking coal prices.
Some Coal Companies Prudently Avoided the Urge to Merge