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Why Peabody Energy Corporation's Stock Popped 14% Today

By Travis Hoium - Jul 28, 2015 at 4:46PM

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Is this a dead-cat bounce?

What: Shares of Peabody Energy Corporation (BTU) jumped 14% today after the company reported earnings and presented a positive spin on the future.

So what: Second-quarter revenue dropped 24% to $1.40 billion and net loss was $1.05 billion, or $3.71 per share. On an adjusted basis, the loss was $0.65 per share, which was even worse than the $0.61-per-share loss analysts expected.

The company also decided to eliminate its dividend to preserve cash, a sign of just how bad things have gotten for Peabody Energy. But management pointed to improvements that will play out by 2017 when $350 million in cash savings will be in place.

Now what: The market's reaction to a massive loss like this may seem strange, but analysts are projecting two years or more and see financial improvement by then. For example, Citigroup says the company is "structurally different than peers" now, although it's still not profitable.

I just don't see the positives financially, especially when you consider the record-low prices for coal and the $6.3 billion in debt Peabody has. I wouldn't buy this pop and don't think it will last in the long term.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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