Peabody Energy Corporation (BTU), Walter Energy, Inc. (WLT): This Coal Play Shows Signs of Revival

On the other hand, Walter Energy, Inc. (NYSE:WLT) has announced that it’s decreasing its quarterly dividend by 92%. This huge cut could be seen as a sign of liquidity problems. However, I wonder why it did not do it before. Paying dividends while having massive debt was taking vital cash from the company.

Arch Coal Inc (NYSE:ACI) is another coal stock with a big debt. The company has more than $5 billion of debt. The debt schedule is relatively easy, and Arch Coal Inc (NYSE:ACI) has time to get things going. The company has had around $1 billion in cash and short-term investments as of the end of the first quarter.

Solvency is not at question so far. Given that the company is expected to lose money this year and the next one, its dividend, which currently yields 2.86%, could be in question. It is possible that the move by Walter Energy, Inc. (NYSE:WLT) could be just the beginning of dividend cuts in the coal sector.

Peabody states that it would finish the third quarter in the range of $0.16 per share loss and a $0.09 profit. The guidance mostly depends on coal prices. Given the company’s liquidity position, Peabody is solidly heading for the second half of the year.

Bottom Line

This was a solid report for Peabody. The company establishes itself as a leader in this challenging environment. Among notable coal plays, the company is the only one that is projected to deliver profits in the near future. Peabody is trading at 19.46 P/E and 0.94 P/B. The environment is still unfavorable, and risks persist. However, if you would like to establish a coal position, Peabody is a sure bet.

Walter Energy, Inc. (NYSE:WLT) is one of the most risky stocks available on the market. The stock makes big price swings even intraday. I see the reduction of the dividend as a positive sign that management admits reality. However, I would like to see the cash position in the coming quarterly report before making statements about liquidity risks.

Arch Coal Inc (NYSE:ACI) trades at 0.32 P/B, which is cheap. The company has a decent cash position. At the same time, the stock lack catalysts for growth, as the company is not expected to make money in the near future.

The article This Coal Play Shows Signs of Revival originally appeared on Fool.com and is written by Vladimir Zernov.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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