At 11:20 this morning, I added another 1/4 to my holding in BTU bringing my total up to 150% of my target position in the stock.
BTU stock price has dropped by 50% since April.
Since January 20th of this year I have been adding to my holding in BTU.
January 19, $60
July 29, $57
August 4, $50
August 15, $48.87
August 22, $41.69
September 29, $35
I agree with Peter Epstein about Peabody:
BTU is one of the largest producers in the world. While known for its dominant position in Wyoming’s Powder River Basin (PRB), there’s a lot more to the company than that. In the past 5 years, Peabody has become a top-10 coking coal producer from coal mines acquired in Australia. Australian coal production accounted for 53% of 2011 year-to-date EBITDA. Peabody is growing rapidly in Asia through proposed participation in Mongolia’s Tavan Tolgoi (west) coking coal concession and a major thermal coal JV in China.
BTU has a trading operation that is not only nicely profitable, but also gives management unparalleled and timely market information.The company controls 9 billion tons of coal reserves, twice that of the 2nd largest U.S. producer. Peabody has a strong and deep management team that is well respected on a global stage. As the largest producer in the PRB, Peabody will be the main beneficiary of higher prices for PRB coal once west coast port capacity enables reliable exports to Asia.
BTU is trading at a 3.8×2012 EV/EBITDA multiple. In years past, Peabody has traded at a 1x-2x premium to the average U.S. coal player’s 1yr forward multiple.Today, that premium is ~0.1x and the stock is down 52% from its 52-week high. BTU’s fundamental strength and its relative cheapness to peers makes it a compelling Buy. (Disclosure: I’m long call options on BTU.)
The Street still has a ‘Buy’ rating and Credit Suisse also rates BTU ‘Outperform’ with a 12 month price target of $80.00
BTU seems inexpensive with a PEG value of 0.3919, below the Coal industry median PEG of 0.7
BTU PE is 10.85 vs industry median of 14.41
BTU is overall quite efficient in comparison to its peers with a Revenues Per Employee, Return on Assets, and Return on Equity of $1,032,764, 8.48%, and 19.48% respectively.
BTU has a debt to total capital ratio of 32.38% which is in-line with the Coal industry’s norm. With an Interest Coverage ratio of 9.53 and a Quick ratio of 1.84 the company should be able to comfortably repay its debt.
October 19, 2011 is the Q3 2011 Earnings Release
BTU reported 2nd quarter 2011 earnings of $1.11 per share on July 19, 2011. This beat the $1.05 consensus of the 22 analysts covering the company. For Q3 analysts average is $0.85 per share. BTU has only negatively surprised once in the past 14 quarters. Forcasts for FY 2011 are for a 31% growth rate and a 48% Growth rate is forcasted for FT 2012. With a PE of 10.85 no wonder the PEG is 0.3919.