Commodities & Metals

Arch Coal Earnings Still in Trouble, but Its Stock Could Double

Arch Coal Inc. (NYSE: ACI) managed to turn in another quarterly loss, which now looks to be eight in a row. The coal giant said that its results were hurt by rail service problems, as well as weak pricing for both thermal coal and metallurgical coal.

24/7 Wall St. recently featured Arch Coal as one of nine stocks that could double in 2014, assuming that certain metrics can be met. Tuesday’s poor earnings report does not change that stance, even if the stock is getting hit. We were not looking for any early 2014 bounce, and the company and peers had already seemed to be telegraphing low earnings expectations for this past quarter and maybe for the first quarter of 2014.

Arch’s loss widened out to $371.2 million from $295 million a year ago. On an adjusted operating basis, what analysts measure for comparisons, the loss was $0.45 per share in the fourth quarter. Revenue was also lower by 17%, down to $719.4 million. Thomson Reuters was calling for a net loss of $0.39 per share on a 21% revenue drop to $764.4 million.

To show just how the internals of coal are, the company showed that, on its Leer Mine, it earned $1.81 per ton in consolidated cash margin in the fourth quarter, versus $3.03 per ton in the third quarter. At the same time, its consolidated sales price was up 2% per ton, versus a consolidated cash cost price rise of 10% per ton.

Similar decreases were seen in its Powder River Basin and in Appalachia operations. Arch Coal continues to expect thermal coal markets to continue to tighten in 2014, although a better economy and favorable weather trends could drive demand more.

The long and short of the matter is that the metrics for coal remain more than just challenging. This stock could still muster a turnaround in late 2014. The consensus price target before the earnings report was $5.00, and the highest analyst price target was $9.00 for the stock.

Arch Coal shares were down 3% at $3.89 in early premarket trading on Tuesday, versus a 52-week range of $3.47 to $6.71.

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