Mining Stocks

Peabody Energy Corporation Analysis – September 2015 Update $BTU

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Peabody Energy Corporation (BTU) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Peabody Energy Corporation is a coal company. The Company has five segments: Western United States Mining, Midwestern United States Mining, Australian Mining, Trading and Brokerage, and Corporate and other. Western United States Mining and Midwestern United States segments are engaged in the mining, preparation and sale of thermal coal, which is typically supplied to United States electricity generators and industrial customers for power generation, with a portion sold into seaborne export markets. Australian Mining segment consists of the Company’s mines in Queensland and New South Wales, Australia. Trading and Brokerage segment is engaged in the direct and brokered trading of coal and freight-related contracts. Corporate and Other segment includes selling and administrative items, associated with its joint ventures, resource management activity, past mining obligations and other energy-related commercial activities.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BTU – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $382,167,130 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.11 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -262.95% Fail
6. Moderate PEmg Ratio PEmg < 20 -0.41 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.22 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 37.95 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

BTU value Chart September 2015

EPSmg -$3.25
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth -$47.11
MG Value based on 0% Growth -$27.61
Market Implied Growth Rate -4.45%
Current Price $1.33
% of Intrinsic Value N/A

Peabody Energy Corporation does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The only requirement the company passes for either investor type is the dividends.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $2.80 in 2011 to an estimated loss of $3.25 for 2015.  This level of demonstrated earnings growth does not support a positive valuation.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Peabody Energy Corporation (BTU)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

BTU Charts September 2015

Net Current Asset Value (NCAV) -$31.27
Graham Number #NUM!
PEmg -0.41
Current Ratio 1.11
PB Ratio 0.22
Dividend Yield 13.23%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Total Current Assets $1,694,000,000
Total Current Liabilities $1,528,400,000
Long-Term Debt $6,284,800,000
Total Assets $11,861,400,000
Intangible Assets $0
Total Liabilities $10,207,600,000
Shares Outstanding (Diluted Average) 272,300,000

Earnings Per Share History

Next Fiscal Year Estimate -$6.04
Dec14 -$2.94
Dec13 -$1.97
Dec12 -$2.19
Dec11 $3.52
Dec10 $2.85
Dec09 $1.66
Dec08 $3.51
Dec07 $0.98
Dec06 $2.23
Dec05 $1.58
Dec04 $0.69
Dec03 $0.14
Dec02 $0.49
Mar01 $0.55

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate -$3.25
Dec14 -$1.28
Dec13 -$0.05
Dec12 $1.23
Dec11 $2.80
Dec10 $2.37
Dec09 $2.09
Dec08 $2.13
Dec07 $1.34
Dec06 $1.35
Dec05 $0.84
Dec04 $0.44
Dec03 $0.29
Dec02 $0.31
Mar01 $0.18

Recommended Reading:

Other ModernGraham posts about the company

17 Companies in the Spotlight This Week – 9/27/2014
Peabody Energy Corporation Annual Stock Valuation – 2014 $BTU

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to read our full disclaimer.

 

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