Arch reported adjusted diluted EPS for the quarter of $0.29, compared with a consensus estimate of $0.32. Eliminating the adjustments, diluted EPS came in at $0.33. Quarterly revenue also fell a bit short at $1.23 billion compared with estimates of $1.3 billion.

The company’s CEO said that Arch is reducing its production volumes in 2012 “to better align with weak generation and coal demand trends.” Here’s what the company had to say about conditions in 2011 and its outlook for 2012:

Coal markets weakened in the fourth quarter of 2011 as abnormally mild weather and muted economic growth caused U.S. power generation to decline slightly for the full year. Domestic coal consumption declined 5 percent in 2011, resulting from the decrease in power generation as well as fuel switching by power producers given decade-low prices for natural gas and abnormally high hydroelectric availability. As a result, coal stockpiles at U.S. generators rose to an estimated 180 million tons by year end, a seasonal build that is above historical norms.

In 2012, Arch currently estimates that domestic coal consumption for power generation could decline by 50 million tons or more from 2011 levels, as mild weather has reduced power demand and the current oversupply in natural gas markets could induce more coal displacement. Given anticipated declines in domestic coal use as well as U.S. generator stockpile builds, Arch believes that coal production and capital spending levels industry-wide are in the process of significant rationalization, which should set the stage for the next market upswing.

Arch shares are down nearly -4.5% in pre-market trading at $15.58 in a 52-week range of $13.09-$36.99.

Paul Ausick

Demand for coal, both the thermal variety used for generating electricity and the metallurgical coal used in steel making, declined in 2011 as coal-fired plants have been shut down in favor of gas-fired plants and demand for steel has dropped.

In the US, gas-fired plants account for about 39% of total generation capacity, but these plants have traditionally been used to meet demand spikes because natural gas was more expensive than coal. With gas prices so low (about $2.49/thousand cubic feet today), coal miners have to lower prices or reduce production or both.

A quick look at coal mining companies’ valuations is enlightening.

Alpha’s share price at around noon today is $23.19 in a 52-week range of $15.49-$61.66. The consensus target price on the stock is $29.50, for a potential upside of 27%.

Patriot’s share price is $9.19 in a 52-week range of $6.92-$27.56. The consensus price target on the stock is $11.50, for a potential upside of 25%.

Peabody’s share price is $38.38 in a 52-week range of $30.60-$73.95. The consensus price target for the stock is $49, for a potential gain of about 28%.

Consol’s share price today is $37.34 in a 52-week range of $30.56-$56.32. The consensus price target is $50, for a potential upside of 34%.

Arch Coal’s share price is $15.39 in a 52-week range of $13.09-$36.99. The consensus price target is $22, for a potential upside of about 43%.

Market Vectors Coal ETF (NYSE: KOL) is down 0.4% at $37.17 and is 52-week trading range is $27.42 to $51.87.

Share price highs for all the coal miners is down by -24% to -64%, with Consol down the least and Patriot down the most. Our pick from among these would have to be Peabody, primarily for its strength overseas. The others are either closing shafts or soon will be.

The boom in shale gas production not only weighs down natural gas prices, but will continue to weigh on coal prices. About the only thing that can help here, is lower natural gas production, and that may be starting to happen.

Paul Ausick

Coal-fired electricity generation fell by -5% in the US, though Peabody estimated that global demand for coal grew to 7.5 billion tons in 2011, led by demand from China, India, and other emerging market countries. For the current year, the company expects to see more fuel-switching from coal to natural gas in the US.

Peabody’s shares are down nearly -6% shortly before noon at $35.39 in a 52-week range of $30.60-$73.95.

Allstate Corporation (NYSE: ALL) Started as Outperform at Credit Suisse.
Amazon.com Inc. (NASDAQ: AMZN) Started as Hold with $225.00 price target “due to low margins through 2012″ at Canaccord Genuity.
The Blackstone Group LP (NYSE: BX) Raised to Buy with $20.00 price target at Argus.
CenturyLink, Inc. (NYSE: CTL) named as value stock of the day at Zacks.
Chubb Corporation (NYSE: CB) Started as Outperform at Credit Suisse.
Darden Restaurants Inc. (NYSE: DRI) Cut to Hold from Buy at Argus.
Freescale Semiconductor Inc. (NYSE: FSL) Reinstated as Outperform at Credit Suisse.
GeoResources, Inc. (NASDAQ: GEOI) Started as Buy with $43 price target “on a concentrated Eagle Ford/Bakken exposure” by Canaccord Genuity.
Google Inc. (NASDAQ: GOOG) was initiated with a ‘Buy’ rating and $725.00 price target “on robust growth and great value” by Canaccord Genuity.
JDS Uniphase Corporation (NASDAQ: JDSU) Started in new coverage as Buy with a $14.75 price target at Jefferies.
LinkedIn Corporation (NYSE: LNKD) Started as Buy with $85 price target as “growth trumps valuation” by Canaccord Genuity.
Peabody Energy Corporation (NYSE: BTU) Downgraded to Neutral from Buy with $43 price target by Goldman Sachs.
Public Service Enterprise Group Inc. (NYSE: PEG) Downgraded to Neutral from Buy with $33 price target at Goldman Sachs.
Quest Diagnostics Inc. (NYSE: DGX) Started as Hold with $51 target at Auriga.
The Talbots, Inc. (NYSE: TLB) maintained Neutral with $3.00 fair value by Janney Capital Markets.
Travelers Cos. Inc. (NYSE: TRV) Started as Outperform at Credit Suisse.
Unisys Corporation (NYSE: UIS) Raised to Outperform as Bull of the Day at Zacks.
UnitedHealth Group Inc. (NYSE: UNH) added to the US Focus List at Credit Suisse.
Urban Outfitters, Inc. (NASDAQ: URBN) Maintained Neutral with $23.00 price target at Janney Capital Markets.
Willis Group Holdings, PLC (NYSE: WSH) named Bear of the Day at Zacks.

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Met coal currently commands a contract price of about $285/metric ton. The spot price for Australian met coal is around $250/metric ton, a -20% drop in just three months. That indicates that the contract price will fall as well, and probably below the spot price. Platt’s has quoted a broker who has projected prices of $235/metric ton in the first quarter of 2012, falling to $205/metric ton by the end of the year.

The lower pricing is the result of an anticipated slowdown in the global economy, particularly in China which has experienced a construction boom in the past few years. But tighter government restrictions on lending and an over-supply of vacant buildings have resulted in fewer construction projects.

Still, there remains speculation that other coal companies may be takeover targets. We noted a rumor in early September that British miner Anglo American PLC (OTC: AAUKY) may be preparing a bid for Walter Energy. Last week, BHP Billiton plc (NYSE: BHP) was said to be considering a $6 billion offer for Walter Energy, with Brazilian giant Vale SA (NYSE: VALE) also included in the mix.

Like many commodities stocks, Walter Energy’s share price plunge in early August, and posted a 52-week low of $57.62. Shares have recovered to over $75, but that’s still about 50% off the stock’s 52-week high. If a takeover offer is coming, now is probably a good time.

US miner Patriot Coal Corp. (NYSE: PCX) has been boosting its production of met coal, and the company has said it sees strong demand for the steel-making coal continuing from Brazil and India. Patriot’s share price is about 67% below its 52-week high, making it another possible takeover target now that it’s market cap has fallen below $1 billion.

Peabody’s shares were up more than 3% at this morning’s opening, at $39.39, in a 52-week range of $30.60-$73.95. ArcelorMittal’s shares were also up more than 3%, at $18.72, in a 52-week range of $14.77-$38.88. The Market Vectors Coal ETF (NYSE: KOL) is unchanged, at $35.14, in a 52-week range of $27.42-$51.87.

The elephant in the room that no one wants to acknowledge is that if the stronger coal players are using the recent weakness to acquire the weaker players, perhaps these companies are positioning themselves better for the next decade and beyond.  Coal demand is a often considered as a leading indicator because it is still used as a key measurement for power consumption and for building infrastructure equipment and structures.  As with many businesses in and around commodities, getting better scale and better geography can incrementally lower costs and that drives higher margins.   Coal players seem to be positioning themselves for far beyond the next few years.

Paul Ausick

Which U.S. industries and companies stand to get hit the hardest in the event a trade war gets started? The U.S. Census Bureau provides data on the dollar amounts of U.S. imports from and exports to China that we have looked at to see where the impacts could be the largest.

According the Census Bureau data, in 2010 the U.S. imported goods from China worth about $365 billion, while exporting goods worth about $92 billion. If the U.S. were to implement tariffs on imports, the likeliest targets would be the goods with the largest dollar value. These imports include computer, semiconductors and telecom gear worth about $88 billion in 2010, clothing and other household goods worth an aggregate of about $71 billion, toys and similar items worth about $27 billion, televisions and other video equipment worth about $15 billion.

If all that sounds like the stuff you can buy at Wal-Mart Stores (NYSE: WMT) or Target (NYSE: TGT) or any number of other U.S. department stores, then be prepared to pay more for these items. Because comparatively little clothing or TVs or toys are manufactured in the U.S. any longer, an import duty on these items would hurt U.S. consumers without providing a lot of help to U.S. manufacturers. Hopes that a new manufacturing segment might spring up are not likely to be realized among large companies but smaller manufacturers could gain some benefit.

However, if China responds with import tariffs of its own, several major U.S. industries could get seriously hurt. Raw materials exports such as coal, copper, iron ore, lumber, and other metals are particularly vulnerable. So are agricultural products like soybeans, cotton, and corn. Industrial and agricultural machinery exports could also face penalties. Another substantial U.S. export is automobiles.

Coal miners like Peabody Energy (NYSE: BTU) and Arch Coal (NYSE: ACI) could get hit, as could copper miners Freeport-McMoran Copper & Gold (NYSE: FCX) and Rio Tinto (NYSE: RIO). Lumber companies Weyerhaeuser (NYSE: WY) and Plum Creek Timber (NYSE: PCL) could face higher duties on log exports.

Agricultural products companies such as Archer Daniels Midland (NYSE: ADM) and Bunge (NYSE: BG) could be in China’s sights if duties are applied to food exports. Caterpillar (NYSE: CAT) and Deere & Co. (NYSE: DE) are likely to see prices for their equipment rise with a concomitant loss of sales to competitors from Japan and Korea.

General Motors (NYSE: GM) and Ford Motor (NYSE: F) both look to China as a growth opportunity. In 2010 U.S. car sales in China totaled more than $3 billion. Slapping a tariff on U.S. cars could really chill the hopes of the U.S. automakers. General Electric (NYSE: GE) could also face tariffs on industrial engines and parts, as well as aircraft parts and other equipment.

China has been fighting inflation for most of this year by restricting bank lending and raising interest rates. Absent a significant currency adjustment, this does little good for the global economy and not much long-term good for China’s domestic economy. If the yuan were allowed to float freely, it could appreciate by as much as 30%. That would quickly eliminate the inflation threat in China, bringing the cost of the country’s goods more into line with foreign costs, slowing the country’s exports, and giving other economies a chance to fill the gap and begin growing again.

But that outcome does not appear likely. Instead, China appears willing to fight the Senate legislation with a trade war. The war of words is likely to last well into next year, but the first real shot is already being primed.

Paul Ausick

In addition to its struggles with a weak economy, the coal industry is almost continuously fighting rear-guard battles against environmentalists and regulators. The industry, or at least some of its players, have earned the scrutiny following deadly mine explosions and for continuing the widely denounced mining practice known as mountaintop removal. The US Environmental Protection Agency tried to rein in mountaintop removal mining by invoking provisions in the Clean Water Act. In a court ruling yesterday, the industry won a victory over the EPA when the judge ruled that the agency had exceeded its enforcement authority by failing to go through the formal rulemaking process before promulgating the restrictions on mountaintop removal.

The suit was filed by the National Mining Association, an mining industry group that includes large coal miners like Arch Coal Inc. (NYSE: ACI), Alpha Natural Resources Inc. (NYSE: ANR), Peabody Energy Corp. (NYSE: BTU), Cliffs Natural Resources Inc. (NYSE: CLF), Consol Energy Inc. (NYSE: CNX), and Patriot Coal Corp. (NYSE: PCX). The court ruling is expected to remove restrictions on more than 70 mining permits that were holding up projects in Appalachia.

The EPA pointed out that the ruling is a procedural issue and that it does not affect the agency’s authority under the Clean Water Act. In fact, the EPA released in July its final guidance which replaced the interim guidance that the court ruled on yesterday.

This issue still has some time to go before it is finally played out, and coal miners will continue to struggle, but not because they can’t keep knocking the tops off Appalachian mountains. On Monday, Arch Coal revised its outlook for the 2011 fiscal year from EPS of $1.75-$2.15 to $1.00-$1.40. The company has lost production of metallurgical coal at one of its mines following a roof collapse. Several other miners have had similar problems producing the high-priced coal and that is sending mining companies back to Appalachian mines.

Typically, when production of coal is disrupted, the price of coal rises. That’s not happening this time as Australian shipments of coal are fast making up for the disruption to production following last year’s floods. And then there’s the overall weak economy, which cuts demand for energy even more.

Over the past year, all seven of the companies mentioned here have seen share prices drop from around -5% (Consol) to nearly -60% (Alpha). Whether the coal mining stocks are currently a great value or a looming value trap depends more the pace of recovery in the world’s economy than on winning a pyrrhic victory over the EPA. And today’s share price declines bear that out.

Shares of Arch Coal are down more than -2% at around noon today, at $15.44, in a 52-week range of $13.09-$36.99. Alpha’s shares are off -3.5%, at $18.49, in a 52-week range of $15.49-$68.05. Patriot shares are off more than -7.5%, at $9.28, in a 52-week range of $6.92-$29.20. The Market Vectors Coal ETF (NYSE: KOL) is up 0.3%, at $32.03, in a 52-week range of $27.42-$51.87.

Paul Ausick

If the rumor is true, the deal would be valued at $7.5 billion and it only highlights the value of coal for industry.  Walter Energy produces and exports metallurgical coal for the steel industry and its stock had been faltering considerably of late.  Disappointing earnings and management turmoil have been attributed to much of Walter’s woes so far this year.

What is interesting is that a Bloomberg report this morning quotes a fund manager saying that Anglo American is not a likely bidder.  Go figure.

Elsewhere in more general coal movers, Market Vectors Coal ETF (NYSE: KOL) is up almost 4% at $41.29.  CONSOL Energy Inc. (NYSE: CNX), valued at $10.3 billion, is up 4.6% at $45.62.  Peabody Energy Corp. (NYSE: BTU), valued at $13 billion, is up 4.8% at $47.85.  Alpha Natural Resources, Inc. (NYSE: ANR), valued at $7.3 billion, is up 7.2% at $32.42.

What is interesting is that Walter Energy’s earnings estimates are $10.47 EPS for 2011 and $12.45 EPS.  Coal companies usually trade with a sub-market P/E multiple.  Still, even if things flatten and the estimates in 2012 only match this year’s estimates then Walter trades at about 8.4-times expected earnings.  It pays only 0.6% in dividend yields.

Even after an 18% pop to $88.69 after closing at $74.99 yesterday.  The 52-week trading range is $69.33 to $143.76.  As with all reports and rumors, none are gospel until a deal is formally announced.

JON C. OGG

Several large pharma firms are in the early stages of an attempt to find new and more effective cholesterol drugs. (Reuters)

The Swiss franc begins to fall. (Reuters)

Amazon (NASDAQ: AMZN) may ship 3.5 million Kindles in the fourth quarter, says industry research firm. (Reuters)

Hewlett-Packard (NYSE: HPQ) to spin off its PC unit. (Reuters)

Zynga’s IPO is delayed. (Reuters)

Alan Krueger, new head of the White House Council of Economic Advisers, to press for more efforts to help create jobs. (Reuters)

General Motors (NYSE: GM) to launch a new Chevy Malibu, an attempt at a higher-mileage car. (WSJ)

Larry Page, Google’s (NASDAQ: GOOG) new CEO, has trouble as he looks for new direction for the company. (WSJ)

Bank of America (NYSE: BAC) sells half of its stake in China Construction Bank  for $8 billion. (WSJ)

Consumer spending rises more than expected in July. (WSJ)

A consumer group wants the FDA to press generic firms to disclose more dangers about drugs. (WSJ)

LG Display (NYSE: LPL) to cut its capex investment. (WSJ)

The European Central Bank may reconsider its stand on inflation and keep rates low. (WSJ)

The price of damages from Irene may hit $12 billion. (WSJ)

China once again tightens rules on bank loans. (WSJ)

Italy may expand the cuts in its austerity package. (WSJ)

The government in Brazil to lower spending and press for lower bank interest rates to bring down inflation. (WSJ)

UAW members press their president to get them a better deal with the Big Three. (WSJ)

Macarthur Coal  probably will accept a higher $5.12 buyout offer from Peabody Energy (NYSE: BTU) and ArcelorMittal. (WSJ)

Truck makers Volvo and Scania to prepare aggressively for another economic slowdown. (WSJ)

The largest car company in China, SAIC Motor, shows a sharp rise in profits. (WSJ)

CME Group (NASDAQ: CME) to postpone the trading of yuan futures. (WSJ)

Alpha Bank and Eurobank, two large Greek banks, to merge. (NYT)

The UAW wants Detroit to raise entry level pay. (NYT)

The IASB takes a dim view of how banks handled accounting for renegotiated Greek debt. (FT)

The confidence index of UK companies drops sharply. (Bloomberg)

India’s economy grows more than expected. (Bloomberg)

Douglas A. McIntyre

That is not slowing down the efforts from the largest miners to acquire more assets. Rio Tinto plc (NYSE: RIO) is teaming up with Japan’s Mitsubishi Corp. on a $1.6 billion offer for Australia’s Coal & Allied Industries Ltd. (OTC: CAIQF). Recently public Glencore International (OTC: GLNCY) has bid $280 million for Australian nickel miner Minara Resources.

Anglo American plc (OTC: AAUKY) is also preparing a bid for Australia’s Macarthur Coal Ltd. (OTC: MACDF), which recently rejected a $4.9 billion bid to acquire the company from Peabody Energy Corp. (NYSE: BTU) and Indian steel giant ArcelorMittal (NYSE: MT). China’s Yanzhou Coal Mining Co. Ltd. (NYSE: YZC) is also believed to be in the running to acquire Macarthur.

The flurry of activity in the mining sector probably reflects the old adage of making hay while the sun shines. High commodity prices have far outstripped cost increases and other anchors on earnings like exchange rate issues. The large miners are flush with cash and are seeking to ensure future growth by acquiring high-performing companies with substantial reserves of materials that are expected to see increased demand when (if) the global economy improves.

Macarthur is one of the world’s largest producers of metallurgical coal and its reserves are among the largest in the world. The company is not trying to avoid a takeover as much as it is trying to generate a higher bid than the Peabody/ArcelorMittal offer of around $15.75/share. So far the company has been unsuccessful and the company faces a September 2nd date when Peabody and ArcelorMittal will take their bid directly to shareholders.

As time passes, though, it will get tougher for potential buyers to offer the premiums now on the table. Either the global economy  will pick up, raising buyers’ costs again, or the global economy will continue to slow, lowering demand for the raw materials the miners produce. Either way, if any of these deals is going to happen, it had better happen soon.

BHP’s shares are down about -0.25%, at $80.69, in a 52-week range of $64.14-$104.59, as the cautious forecast weighs on the share price. Rio Tinto’s shares are down about -0.75%, at $57.73, in a 52-week range of $47.10-$76.67.

Paul Ausick