Arch Coal, Inc.'s (ACI) third quarter missed on account of the Midwestern flooding and the geological challenges in Appalachia. This was offset in part by improved metallurgical coal shipments and robust met coal pricing. Going forward, increased regulation and alternate energy sources, specifically natural gas, continue to be major risks for coal miners like Arch Coal.
Though we believe the company is well-capitalized, low-cost operations provide a competitive edge over smaller players in the industry, we move to an Underperform recommendation on Arch Coal due to the recent difficulties faced at the company's PRB operations as well as the longwall outage at Mountain Laurel (Appalachia).
Presently, the stock is trading at a premium to the peer group, based on 2012 earnings estimates. The trailing 12-month EV/EBITDA multiple is above the industry average. Our target price is $13, valued at 10.9x 2011 EPS.
ARCH COAL INC (ACI): Free Stock Analysis Report
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