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Can Arch Coal (ARCH) Run Higher on Rising Earnings Estimates?

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Investors might want to bet on Arch Coal (ARCH - Free Report) , as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this coal producer, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Arch Coal, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The company is expected to earn $3.28 per share for the current quarter, which represents a year-over-year change of -20.39%.

The Zacks Consensus Estimate for Arch Coal has increased 5.86% over the last 30 days, as two estimates have gone higher while one has gone lower.

Current-Year Estimate Revisions

For the full year, the earnings estimate of $14.94 per share represents a change of +31.51% from the year-ago number.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for Arch Coal. Over the past month, two estimates have moved higher compared to one negative revision, helping the consensus estimate increase 11.4%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Arch Coal currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

While strong estimate revisions for Arch Coal have attracted decent investments and pushed the stock 8% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.


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