On Nov 28, we issued an updated research report on Arch Coal Inc. (ACI). Arch Coal produces both varieties of coal from the major coal rich regions of the U.S. The company is well positioned to capitalize on any improvement in demand in the global coal markets. However, rising competition in this space and stricter proposal on emission control might impact demand.
Arch Coal reported a loss of 45 cents per share in the third quarter of 2014, wider than the Zacks Consensus Estimate of a loss of 41 cents. Arch Coal’s third-quarter total revenues of $742.2 million surpassed the Zacks Consensus Estimate by 4.4%. However, revenues declined 6.2% from $791.3 million in the year-ago quarter, primary due to lower sales volume.
Arch Coal’s presence in both eastern and western parts of the country allows it to ship and supply coal to a wide range of customers. The company expects a revival in long-term demand for thermal coal, driven by the Asian countries. A recent World Steel Association report also projected an increase in global steel usage by 2% each in 2014 and 2015. This will create more options for coal producers like Arch Coal.
However, the U.S. Environmental Protection Agency’s (EPA) proposal to curb carbon pollution from power generation plants could lower thermal coal demand going forward. Recently, the U.S. and Chinese governments have signed a pact to lower emission, which could impede the recovery in the coal markets.
Apart from the stricter regulation on emission control, the company will also have to ward off rising competition from Australian and Indonesian operators. These countries enjoy locational advantage with their proximity to high demand regions.
Arch Coal currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the space include SunCoke Energy (SXC), Natural Resource Partners LP (NRP) and Hallador Energy Company (HNRG). SunCoke Energy sports a Zacks Rank #1 (Strong Buy) while Natural Resource Partners and Hallador Energy have a Zacks Rank #2 (Buy).
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