Why Peabody Energy (BTU) Stock is Soaring Today - TheStreet

NEW YORK (TheStreet) -- Shares of Peabody Energy (BTU) - Get Report are rising by 15.15% to $13 in pre-market trading on Monday morning, following Friday's announcement that the energy company is selling its New Mexico and Colorado assets to Bowie Resource Partners for $358 million in cash.

The deal between the two companies was agreed upon after a "competitive bidding process" and includes Peabody's El Segundo and Lee Ranch mines in New Mexico and the Twentymile mine in Colorado.

The mines have combined coal reserves of approximately 330 million tons.

"This transaction is consistent with our stated focus area of portfolio optimization. While our New Mexico and Colorado operations and workforce have been substantial contributors to our success over the years, we are reshaping our portfolio focus around our core regions including the Powder River Basin, Illinois Basin and Australia," Peabody CEO Glenn Kellow said in a statement announcing the sale.

The deal is expected to close before the end of the fiscal 2016 first quarter.

Separately, TheStreet Ratings team rates PEABODY ENERGY CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

We rate PEABODY ENERGY CORP (BTU) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, poor profit margins and generally disappointing historical performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 102.3% when compared to the same quarter one year ago, falling from -$150.60 million to -$304.70 million.
  • The debt-to-equity ratio is very high at 4.81 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.46, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, PEABODY ENERGY CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for PEABODY ENERGY CORP is currently extremely low, coming in at 11.62%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -21.47% is significantly below that of the industry average.
  • BTU's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 92.69%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • You can view the full analysis from the report here: BTU

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.