We maintained our Neutral recommendation on
Arch Coal Inc.
). The premier coal producer currently carries a Zacks Rank #3
Why the Reiteration?
Arch Coal ended the second quarter 2013 with a wider
year-over-year loss owing to the challenging global metallurgical
coal market. The reiteration takes into account the impact of the
Environmental Protection Agency's new proposal regarding
implementation of carbon-capture technology by coal-fired plants.
This will make coal a less attractive option for utility
companies thereby affecting premier suppliers like Arch Coal.
Moreover, the company is likely to face increased competition
from other coal mining companies in Australia and Indonesia,
which enjoy a transportation cost advantage due to their
proximity to the importing countries in Asia.
Arch Coal's continued capital restraint efforts and cost
minimization strategies are however expected to be key growth
drivers. The company will streamline its operations by focusing
its spending on low-cost thermal mines and the profitable
metallurgical coal mines of Appalachia.
Arch Coal managed to enter into multiple long-term agreements
with customers, some of which will run through 2018 and will
contribute to a steady revenue stream. In addition, world steel
utilization is projected to increase by 35% in 2020, which will
substantially benefit the company's metallurgical coal sales.
Nonetheless, a downgrade in credit rating to "BB-" by Standard
& Poor's will pose difficulties for Arch Coal in accessing
the capital markets and will increase the borrowing cost.
Other Stocks to Consider
Well-positioned Industry players at present are Zacks Ranked
#1 (Strong Buy)
Alliance Holdings GP, L.P.
), and Zacks Ranked #2 (Buy)
Alliance Resource Partners L.P.
The AES Corp.
ARCH COAL INC (ACI): Free Stock Analysis
AES CORP (AES): Free Stock Analysis Report
ALLIANCE HLDGS (AHGP): Free Stock Analysis
ALLIANCE RES (ARLP): Free Stock Analysis
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