Arch Coal: We’re Baaaaack
Arch Coal (ARCH) is emerging from bankruptcy with a new ticker–ARCH–and a new lease on life thanks to higher coal prices and less debt. FBR’s Lucas Pipes and Derek Hernandez explain:
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We are initiating coverage on Arch Coal with an Outperform rating and a price target of $71 per share. Arch Coal’s new equity is emerging from a balance sheet restructuring that has left its low-cost operating assets unchanged: high-quality met coal production in the East and PRB thermal coal exposure in the West. In the course of the restructuring, the company right sized its balance sheet, eliminated uneconomical off-take agreements, and lowered production costs even further. While we always considered Arch a strong operator, we believe the company is
now positioned to prosper in almost any coal price environment. Near term, we see the company’s met coal exposure as its greatest catalyst. With 7.0 MT to 7.5 MT of met coal sales anticipated in 2017, Arch Coal, we believe, is now among the largest domestic met coal producers, ready to take advantage of the higher price environment. We do believe that the domestic thermal coal market is also turning the corner from a very challenging 1H16, potentially leading to higher sales and prices in Arch’s large PRB platform. We would take advantage of Arch’s unique position and accumulate aggressively into the $60s per share.
Arch Coal is trading at $$66.49 at 10:20 a.m. today, while the VanEck Vectors Coal ETF (KOL) has gained 1.7% to $12.10.