Mad Money

Peabody Energy Plays the Wall Street Game


Peabody Energy knows how to play the Wall Street game.

Forget the fact that it’s the value play of the coal patch. The company has been acquiring and divesting itself of assets in order to become a leaner, meaner higher-growth coal company. That’s how you get a premium stock price, Cramer says.

Peabody has proposed spinning off its Appalachian assets into a company called Patriot Coal Corp., which would let the company focus on faster-growing markets like international, Wyoming, Colorado and Illinois. The asset swap with Consol to boost its high-energy reserves was a good move, too.

No wonder this is Cramer’s favorite coal play.

The 41 years of reserves mean Peabody isn’t in danger of drying up the way most oil companies are. That’s good visibility for the company, Cramer says.

BTU is also developing the first coal-to-liquids facility in the U.S. It’s a joint venture with Rentech, and Peabody has the option of buying 20% of the project. Looking for a safe way to play CTL? This could be it.

Bottom Line: BTU has great visibility on its coal reserves, it’s spinning off exactly the right assets to get a higher multiple, and it’s the perfect stock to play the continued strength of king coal, Cramer says.

Questions? Comments?