NEW YORK (TheStreet) -- Peabody Energy (BTU - Get Report) stock is increasing 4.82% to $2.39 in mid-morning trading on Friday, after reports suggested the company is seeking to restructure its $6.3 billion debt.
The company hired financial advisory and asset management firm Lazard (LAZ) and sought out legal counsel from Jones Day to seek ways to cut its debt to avoid bankruptcy, a move that other miners have made to deal with falling coal demand, Bloomberg reported.
Peabody could offer to swap debt obligations for new shares or convertible notes, according to people familiar with the matter, Bloomberg added.
"While Peabody has a stated goal of deleveraging over time, we won't comment on speculation regarding specific strategies," Peabody spokesman Vic Svec told Bloomberg.
Prices of coal for steelmaking has fallen 72% since April 2011, while power-generating thermal coal faces substantial competition from natural gas.
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 a few notable 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, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
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 when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 1326.1% when compared to the same quarter one year ago, falling from -$73.30 million to -$1,045.30 million.
- The debt-to-equity ratio is very high at 3.81 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, BTU has a quick ratio of 0.52, this demonstrates the lack of ability of the company to cover short-term liquidity 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.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 89.81%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 1225.00% compared to the year-earlier 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.
- PEABODY ENERGY CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, PEABODY ENERGY CORP reported poor results of -$2.83 versus -$1.12 in the prior year. This year, the market expects an improvement in earnings (-$2.11 versus -$2.83).
- You can view the full analysis from the report here: BTU Ratings Report