• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Basic Materials

Thanks for Nothing: Peabody Energy, Freeport-McMoRan Downgraded

Jefferies acknowledges that low commodity prices -- specifically in copper and coal -- could pose a problem for the two commodities plays.
By CARLETON ENGLISH Jan 12, 2016 | 08:43 AM EST
Stocks quotes in this article: FCX, BTU, ACI

Commodity prices have been low for some time amid an economic slowdown in China. Some analysts are just now downgrading their ratings on commodity businesses as the effect of persistently low prices on company balance sheets becomes blindingly obvious. 

On Tuesday, Christopher LaFemina, an analyst at Jefferies, joined the growing chorus of analysts with a negative commodity outlook. He downgraded Freeport-McMoran (FCX) to Hold from Buy and Peabody Energy (BTU) to Underperform from Hold. 

In the case of Freeport's downgrade, LaFemina cited lower projected copper prices, risks in Indonesia, and the company's "reluctance" to sell assets -- such as its oil and gas holdings. LaFemina also said that Freeport's window of opportunity for fixing its balance sheet may have closed. 

"Asset sales would have unlocked significant value as Freeport traded at a large discount to its sum-of-the parts value," LaFemina wrote. So far, the company announced a series of cost-cutting measures that include suspending its dividend and reducing capital expenditures. 

The Arizona-based natural resources company has a $20 billion debt load and has "no way to meaningfully reduce debt other than highly dilutive equity issuances," LaFemina wrote. 

Shares of Freeport closed down 20% on Monday as the copper futures fell below $2 a pound. 

Meanwhile, LaFemina downgraded Peabody Energy, a Missouri-based coal mining company, on balance sheet risk. The company has $6 billion in debt, and its net debt is 22.3x LaFemina's 2016 EBITDA estimate. For perspective, a debt to earnings ratio above 5 is considered a sign that a company will have difficulty meeting its debt obligations.

Given low prices, a stronger U.S. dollar and weakening demand from China, LaFemina doesn't expect Peabody to generate enough cash to "meaningfully" reduce debt. 

As for a sign of how bad things could get, on Monday, Arch Coal (ACI), another Missouri-based coal mining company, filed for Chapter 11 bankruptcy protection and cited "changes in the demand" for coal in its filing with the Securities and Exchange Commission.

With the widely known troubles in the commodities business and examples of companies filing for bankruptcy protection, the Jefferies downgrades Tuesday confirm what much of the industry has already known.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Employees of TheStreet are restricted from owning individual securities.

TAGS: Investing | U.S. Equity | Basic Materials

More from Basic Materials

Commercial Metals Is Poised for an Upside Breakout

Bruce Kamich
Dec 28, 2021 11:45 AM EST

Let's review the charts and indicators.

Martin Marietta Looked Bullish Even Before Getting an Upgrade

Bruce Kamich
Dec 17, 2021 10:20 AM EST

Here's our updated trading strategy and price targets.

Masco Surges -- but Is It a Buy?

Bruce Kamich
Nov 16, 2021 1:39 PM EST

Traders and investors looking for a building products name to add to their portfolio could go long MAS around this level.

History Says Enthusiasm About Infrastructure Spending Should Be Tempered

Bret Jensen
Nov 10, 2021 8:30 AM EST

It could be a few years before construction projects that receive money from the latest federal infrastructure infusion get off the ground.

Dividend Investors Listen Up: We Are Living in a Materials World

Bob Ciura
Oct 29, 2021 11:00 AM EDT

Give your portfolio some credit and see which of these materials companies gets your interest: BHP Group, Dow Inc. or LyondellBasell.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:24 PM EDT PAUL PRICE

    An Interesting Chart

    I'm betting heavily that stocks will be way up aga...
  • 10:10 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    "Market Timing for Dummies"
  • 01:44 PM EDT STEPHEN GUILFOYLE

    Stocks Under $10 Portfolio

    We're making a series of trades here.
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login