The trouble for coal stocks has gone from bad to worse following reports that Patriot Coal (NYSE:PCX) might be struggling to stave off bankruptcy. Although Patriot is a smaller player in the industry — with a market cap that now sits below $250 million — this latest episode has weighed heavily on investors’ already shaken confidence in the downtrodden coal sector.
Nevertheless, sentiment has weakened so much in the wake of this news that coal stocks might finally be nearing a bottom.
Why Has Patriot Melted Down?
Shares of PCX — one of the many companies victimized as soft demand for coal has led to severe price deterioration for the commodity — already were on the ropes prior to last week. Then on Monday, May 14, the company reported a surprisingly poor outlook after the bell, citing weak international demand and a possible default by a key customer. The stock fell 18% the next day, then proceeded to slide another 16.5% to close out the week.
Matters grew even worse on Tuesday when rumors that Patriot was preparing to file bankruptcy caused its shares to trade down to an intraday panic low of $1.36, versus $5.83 at the beginning of the month. The stock subsequently recovered on news that it was in talks to secure new financing, but PCX still closed Wednesday with a year-to-date loss of more than 68%. (more)
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