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Arch Coal in Trouble: Will Reverse Stock Split Help?

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St. Louis, MO-based coal miner, Arch Coal Inc. announced a one-for-ten reverse stock split of its common stock on Jul 20, 2015. The announcement fetched the company a 9.1% gain in its share price during the trading session yesterday.

The reverse stock split is expected to take place after market close on Jul 27, 2015, i.e., the company’s common stock is expected to begin trading on a split-adjusted basis on the New York Stock Exchange ("NYSE") at the market open on Jul 28, 2015.

The reverse stock split will reduce the number of outstanding shares of Arch Coal's common stock from approximately 213 million to about 21.3 million. This step is being taken to increase the price of Arch Coal shares and maintain its listing on the NYSE.

Arch Coal will not issue any fractional shares associated with the reverse stock split. Alternatively, in lieu of such fractional shares, the company will pay an amount of cash based on the volume weighted average price of its common stock.

Since May 5, 2015, Arch Coal’s share price has been trading below the $1 mark and has plummeted 86.5% year to date. The company has been chalking out ways with its lawyers and bondholders to avoid insolvency.

Depressed by a welter of factors, the plight of coal stocks today is unimaginable just a few years back. The weakness in coal demand and softness in selling prices have taken a toll on many U.S. based coal players. The U.S. Energy Information Administration in a recent report has projected a 75 million short ton (MMst) decline in coal production in 2015.

Recently, two primary metallurgical coal producers – Walter Energy, Inc. and Alpha Natural Resources, Inc. – have been delisted from the NYSE due to “abnormally low” traded share prices. Walter Energy has even filed for bankruptcy protection.

The weak coal industry landscape has affected a number of big producers like Peabody Energy Corp. (BTU - Free Report) and Rhino Resource Partners LP . Share prices of these companies have fallen 84.5% and 54.7% year to date respectively.

Arch Coal currently has a Zacks Rank #4 (Sell). Despite the odds in the coal space, CONSOL Energy Inc. (CNX - Free Report) carries a favorable Zacks Rank #2 (Buy).

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