On Dec 13, 2013, we have reiterated our Neutral recommendation
on the coal producer
Arch Coal Inc.
). The company currently has a Zacks Rank #3 (Hold).
Why the Reiteration?
In the third quarter of 2013, Arch Coal's loss of 1 cent per
share was much narrower than the Zacks Consensus Estimate of a
loss of 30 cents. However, the company generated profits in the
The prevailing oversupply in the global metallurgical coal
("met coal") market led to the bottom-line underperformance. Arch
Coal's reported revenues failed to beat the Zacks Consensus
Estimate as well as the prior-year figure, mainly due to a 23.6%
drop in the average sales price per ton of coal.
Recently, Arch Coal has introduced long wall mining techniques at
its Leer mine in Tygart Valley, northern West Virginia. The
company invested $400 million to develop this mine. The company
is expected to produce increased volume of high quality met coal
from first-quarter 2014.
As per the World Steel Association report, utilization of steel
is expected to increase in 2014, primarily on the back of
strength in the automotive, energy and residential construction
sectors. The increase in coal production will enable the company
to meet higher met coal demand in the near term.
On the flip side, in Sep 2013, the U.S. Environmental Protection
Agency (EPA) proposed Clean Air Act standards to minimize carbon
pollution from new power plants, including coal-fired set ups.
The EPA plans to implement the new standards to support President
Obama's Climate Action Plan, announced in Jun 2013.
To cope with the proposed mandates, the utilities will have to
implement expensive technology at their new coal-fired plants to
reduce CO2 emissions, which will subsequently increase operating
costs. The companies can shift their mode of power generation to
natural gas and alternate energy sources to avoid incremental
spending. This will impact coal demand, thereby affecting Arch
Other Stocks to Consider
The stocks in the sector that are currently performing well
Abraxas Petroleum Corp.
) with a Zacks Rank #1 (Strong Buy), and
Alpha Natural Resources, Inc.
Suncoke Energy Partners, L.P.
) with a Zacks Rank #2 (Buy).
ARCH COAL INC (ACI): Free Stock Analysis
ALPHA NATRL RES (ANR): Free Stock Analysis
ABRAXAS PETE/NV (AXAS): Free Stock Analysis
SUNCOKE ENERGY (SXCP): Free Stock Analysis
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