With the price of oil high, coal is suddenly becoming hot. Consumers and businesses are looking for some kind of alternative energy. With coal, the old has become new again. A lot of people think heavy use of coal went out with the 19th century.
Patriot Coal (NYSE: PCX, Stock Forum) has gotten in on the joy ride. Its shares are trading at over $108. Its 52-week low was just above $27. But now that the stock is doing well, the company may be overextending itself.
Patriot was spun out of Peabody Energy (NYSE: BTU, Stock Forum) last November 1, so financial performance numbers are pro forma at this point. Revenues in the 2008 first quarter were $284.3 million, an increase of $8.5 million over the prior year pro forma amount. The firm uses EBITDA to measure operating margins, which can often disguise depreciation issues. For the first quarter, the figure was $17 million. Problems at one of its mines hurt production, or, the company says, the numbers would have been better.
In April, PCX bought Magnum Coal for $709 million. Shortly after that, the company said it would issue $175 million in aggregate principal amount of convertible senior notes.
The M&A effort and corporate finance pieces make for a lot of moving parts. Betting against coal in the current environment is probably a bad idea, but Patriot is very expensive.