Peabody Energy (NYSE:BTU) announced that it has completed the spin-off of its coal asset and operations into a new public company called Patriot Coal (NYSE:PCX). Peabody shareholders received one share of PCX for ever 10 BTU shares that they owned in a special dividend distributed today. Shareholders are hoping that this new spin-off can help unlock value.

"Completing this spin-off was a key element in transforming our business portfolio," said Peabody Chairman and Chief Executive Officer Gregory H. Boyce. "Peabody and Patriot will both benefit by a distinct business focus and growth opportunities to build shareholder value. Peabody remains focused on high-margin, high-growth markets by expanding globally and building on our leading U.S. position in the Powder River Basin, Colorado and the Midwest."

Patriot Coal is worth watching because spin-offs tend to outperform the overall market within the first two years. Traditionally, parent company shareholders are inclined to sell off their stakes in the new company due to limitations on holdings for institutions or personal preference for individuals. Management in new spin-offs are also more heavily incentivized to perform than usual, which makes the first year a turning point. Combined, these factors lead to a depressed share price that tends to substantially recover in year two.

In the end, spin-off companies are always worth watching due to their statistical advantage over the rest of the stock market. This company in particular is worth watching since it is in the coal industry that it already undervalued. Any recovery in the market combined with strong performance in the company itself could yield substantial returns for investors willing to wait a couple of years. These factors make PCX a stock worth watching!

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