Goldman Sachs Cuts Arch Coal (ACI) to Sell; Select Coals Name Can Rally on Recovery in Prices

October 9, 2012 9:10 AM EDT
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Price: $0.58 --0%

Rating Summary:
    9 Buy, 13 Hold, 12 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 35 | Down: 31 | New: 9
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Goldman Sachs downgraded Arch Coal Inc (NYSE: ACI) from Neutral to Sell with a price target of $5.00 (from $7.50).

The firm see it as overvalued given weak liquidity/returns. "We expect ACI to lag as it is forced to cut met coal growth guidance on insufficient FCF after debt paydown, declines in its weaker-quality coal." the analyst said.

While negative on Arch Coal, Goldman said a recovery in cola prices can allow Buy-rated Peabody Energy (NYSE: BTU) and Consol Energy (NYSE: CNNX) to rally.

"We view current spot prices, down over 30% in the last three months to $145/MT, as unsustainable," the analyst said. We expect spot prices to recover towards our $185/MT 1Q13 benchmark price over the next three months and continue to rise towards our $200/MT mid-cycle forecast by 4Q13."

If met prices rise towards the $180-$190/MT currently discounted in stocks diversified names can outperform, as investors can focus on their leverage to rising thermal coal prices and company-specific catalysts, the analyst said.

In addition to Arch Coal, Goldman is lowering six-month targets by an average of 11% on the group:
Alpha Nat Res (NYSE: ANR) (Neutral) down from $9 to $8
Consol Energy (Buy) (NYSE: CNX) up from $37 to $38
Peabody Energy (NYSE: BTU) (Buy) from $30 to $26
Walter Energy (NYSE: WLT) (Sell) from $34 to $27.

For an analyst ratings summary and ratings history on Arch Coal Inc click here. For more ratings news on Arch Coal Inc click here.

Shares of Arch Coal Inc closed at $6.64 yesterday.

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