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Bull of the Day: Arch Coal (ARCH)

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Over the past 8 years, the coal industry has been hampered by massive regulations, and a not so friendly relationship with the presidential administration.  But this is going to change, according to our new President Donald Trump.  President Trump envisions a coal resurgence under his administration.  Further, President Trump is in the process of eliminating some of the burdensome regulations imposed on the industry.  And one coal company, that is poised to take advantage of these changes, is our Zacks Bull of the Day, Arch Coal (ARCH - Free Report) .  

This Zacks Ranked #1 (Strong Buy) company is engaged in the mining, processing and marketing of low-sulfur bituminous coal. The Company sells its coal primarily to electric utilities in the eastern United States. The Company also exports coal, primarily to European customers.

Recent Earnings Results

Management announced Q4 16 earnings on February 8th where they absolutely destroyed the Zacks consensus earnings estimate; expectations were for $0.03, and they came in at $1.65, a +5,400% positive surprise.  The company easily beat the Zacks consensus revenue estimate as well.  Coming out of restructuring, management was able to eliminate nearly $4.8 billion of debt obligations, and reduced annual interest expenses by $330 million.  

Management’s Take

According to John W. Eaves, Arch's chief executive officer, “Arch achieved a strong financial and operational performance in the fourth quarter - our first earnings period following the completion of our successful restructuring.  These results demonstrate the positive momentum in our business and the potential we have to elevate our performance still further as the industry continues to evolve. We are confident in our ability to leverage our strong operating portfolio, commercial and logistical expertise and enhanced financial foundation to deliver long-term value for our shareholders."

Further, John T. Drexler, Arch's senior vice president and chief financial officer, stated, "Our successful financial restructuring has dramatically transformed our capital structure, enhanced our balance sheet and provided the kind of financial flexibility that will enable us to compete successfully in today's marketplace. Our fourth quarter performance illustrates the overall strength of the new Arch Coal, and our liquidity position will enable us to execute our strategy, capitalize fully on our low-cost operating portfolio, and generate long-term shareholder value."

Price and Earnings Consensus Graph    

As you can see in the price and earnings consensus graph below ARCH came storming out of restructuring plan with a huge beat, and analysts have responded by significantly increasing their expectations for 2017.

Arch Coal Inc. Price and Consensus

Arch Coal Inc. Price and Consensus | Arch Coal Inc. Quote

Increasing Estimates

Due to the extremely impressive earnings and management’s ability to adhere to their restructuring plan, earnings estimates have improved over the past 30 days for Q1 17, Q2 17, FY 17, and FY 18.  Q1 17 rose from $$2.24 to $2.85, Q2 17 improved from $1.42 to $2.24, FY 17 jumped up from $6.00 to $8.66, and FY 18 vaulted up from $3.84 to $7.08.

Bottom Line

With the new administration coal is back!  President Trump has been hailing clean coal as one of the major sources of energy during his campaign and as the new President of the United States of America.  By eliminating huge amounts of debt via their restructuring plan, Arch has positioned itself to take advantage of the resurgence of American coal.


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