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Peabody Energy (BTU), the leading U.S. coal company, has been going through hard times, as conditions for the coal industry remain tough due to weak economic conditions, lower natural gas prices and tougher environmental regulations discouraging coal consumption. In the prevalent tough situation, debt refinancing, sale of non-core assets and cost reduction efforts have remained a popular choices for coal companies looking to strengthen their bottom line results and balance sheets. In the current tough environment, I believe BTU remains the best coal stock among U.S. coal stocks, as the company has a diversified global portfolio. Also, the company remains committed to improving its cost structure, lowering its capital expenditure (CapEx), and reducing debt.

To improve upon its financial flexibility in the weak coal market, BTU has been taking several measures, including improving upon its cost structure and opting for debt refinancing. Last week, BTU completed a new $2.85 billion secured credit facility. The new credit facility includes a 7-year $1.2 billion term loan with a maturity in 2020, and an increased 5-year $1.65 billion revolver due in 2018. The new credit facility helped the company improve its financial flexibility and extend debt maturities. The new credit facility of $2.85 billion replaced $1.2 billion term loans due in 2015 and 2016 and a $1.5 billion revolver. The new term loan does not have any debt covenant attached to it, which bodes well for the company. Measures taken by the company to improve upon its financial flexibility and extend its debt maturity will help it survive the ongoing harsh times for coal markets.

BTU has also been undertaking measures to reduce its costs to support its bottom line results in the soft coal market conditions. Recently, the company announced its plans to reduce the excavator fleet at Australian mines in reply to weak coal market conditions. Earlier this year, BTU has already laid off 450 contractors at its Australian operations in efforts to improve its cost structure. BTU's efforts to reduce its costs by lowering the employee count are consistent with the industry's efforts, as the latter has eliminated more than 7,000 jobs due to soft coal markets since 2011.

BTU has a diverse global portfolio, which remains an important driver for the company's future earnings. The company has operations in the U.S. and Australia, which comprise nearly 55% and 43%, respectively, of the company's total revenues. BTU's Australian operations give it an advantage over its peers in the U.S.; the company can tap market opportunities available in Asian markets. The bottom line results of BTU's Australian operations are likely to benefit from the recent election of the new Australian Prime Minister, Tony Abbot, who has promised to eliminate the carbon tax. The new Australian PM is also not in favor of the existing Australian Mineral Resource Rent Tax of 30% on profits of mining companies.

BTU has maintained its initiatives to strengthen its earnings and balance sheet in the prevailing difficult environment for the industry. The company's ongoing efforts to reduce its costs and improve its financial flexibility bode well for its bottom line results and the stock price. Also, I believe that U.S. coal stocks have bottomed out and the coal markets will improve as demand will recover and more production cuts will be announced to address oversupplied coal markets. Current valuations also remain attractive for the company, as the stock is trading at a Price/Book Value of 1.05x and a Price/Sales of 0.60x. I reaffirm my bullish stance on the stock due to the aforementioned factors.

Source: Diverse Global Portfolio The Game Changer For Peabody Energy In Tough Coal Industry