Another Analyst Jumps on Arch Coal Train … Calls for Big Upside

Arch Coal Inc. (NYSE: ACI) is seeing another analyst jump on its bandwagon after what has been a dismal ride down. Shares have fallen close to 80% over the past year and change, but it has been impossible to not recognize that shares as of Monday’s close were up 35% from the low of $5.16.

Now shares are up more than 4% more at $7.31 after Argus raised its analyst rating to Buy from Hold. More important is the upside target: Argus sees $10 as the price target, which is more in-line with the $10.10 consensus target according to Thomson Reuters.

Keep in mind that we saw two analyst upgrades for Arch Coal after the results just a week ago. The implication: coal has bottomed out (ergo, or is trying to find a bottom).

The Argus report said:

Arch shares are down approximately 80% over the past 12 months due to a perfect storm of negative factors, including declining coal demand and increasing inventories at electric utilities, falling natural gas prices, and rising coal production costs. Like its peers, Arch is also feeling the impact of more restrictive EPA regulations governing the construction of coal-fired electric plants. At the same time, while our long-term outlook remains cautious, we believe that Arch shares offer an attractive near-term opportunity given their sharp decline over the last year and the recent shift in the coal-natural gas price differential, which has again made natural gas more expensive than coal as a fuel for electric utilities. We also expect Arch to benefit from the industry’s closure of less efficient coal mines and continued strength in U.S. coal exports.

This is even after Argus is widening its loss target to -$0.42 per share from -$0.37 per share for all of 2012. On the future earnings Argus said, “We then expect Arch to return to profitability in 2013, though we are lowering our full-year EPS estimate to $0.42 from $0.83 based on our revised pricing assumptions. The current 2013 consensus estimate is a loss of $0.26 per share. Our long-term EPS growth rate forecast remains 4%.”

JON C. OGG