Back to top

Analyst Blog

We reaffirm our Neutral recommendation on Arch Coal Inc. (ACI - Analyst Report). The company posted mixed numbers for the third quarter 2012, as the top line beat the Zacks Consensus Estimate while the bottom line fell short of it.

The U.S. coal market is expected to be under pressure from the continued switching to natural gas; however, the seasonal spike in demand for electricity could improve the company’s operations. Arch Coal’s high-quality Leer Mine prospect is expected to be a major contributor going forward.

The company’s strategy to shift its capital spending to core operations will secure investment options for projects with potential high returns as well as for modernization initiatives. Conversely, Arch Coal’s operations will be impacted by stringent regulations from the Environmental Protection Agency ("EPA") that could potentially result in idling of certain coal plants. The pressure of increasing compliance costs could also lower margins.

The company plans to strengthen its foothold in the Asia-Pacific markets and has entered into several deals on PRB coal with Korea’s power generating companies. Although the met coal market is expected to experience slow growth, we believe these opportunities will keep the growth momentum for Arch Coal.

Nevertheless, unplanned outages or equipment failures and adverse weather conditions like Hurricane Sandy and heavy snows could hamper operations and transportation thereby affecting the company’s financials.

For 2012, Arch Coal expects to sell 129-135 million tons of thermal coal and 7.5 million tons of metallurgical coal. The company’s capital outlay will likely be in the range of $410.0-$430.0 million.

The Zacks Consensus Estimates for the fourth quarter and full year 2012 currently stand at a loss of 12 cents and 31 cents per share, respectively.

The company’s closest peer, Peabody Energy Corporation (BTU - Analyst Report) is also facing the brunt of the tough market conditions. Reflecting the broad fundamentals, both these companies hold a short-term Zacks #3 Rank.

The company is a pure coal play and engages in the production and sale of steam and metallurgical coal from surface and underground mines located in the United States.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
HI-CRUSH PT… HCLP 68.05 +4.74%
CTPARTNERS… CTP 12.91 +3.12%
QIHOO 360 T… QIHU 90.56 +3.11%
HOLLYSYS AU… HOLI 22.85 +2.97%
BONANZA CRE… BCEI 61.57 +2.94%