Nomura Securities Upgrades Arch Coal Inc (ACI) to Neutral on Improving PRB Fundamentals

March 18, 2013 7:46 AM EDT
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Price: $0.58 --0%

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    9 Buy, 13 Hold, 12 Sell

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Nomura Securities upgraded Arch Coal Inc (NYSE: ACI) from Reduce to Neutral with a price target of $6.00 (from $5.00).

The upgrade comes as the stock is near their price target, and they believe PRB fundamentals should start to improve more meaningfully by year end.

"The strong rally in natural gas prices should support reverse switching levels of ~30mt for PRB in 2013, resulting in a sharp inventory draw down by the end of the year," analyst Curt Woodworth states. "While there exists significant spare capacity in the basin, producer to consumer volumes should see solid growth in 2014 as inventory depletion from 2013 fades. While our fundamental analysis on the PRB provided in our sector note creates a clear path to inventory normalization by year end, the spare capacity and producer discipline questions remain. FCF should improve by $250mn in 2014 from 2013 owing to a $200mn Leer delta (combination of capex reduction and EBITDA leverage on mine ramp) as well as ASP leverage across the met portfolio, where we forecast prices to rise by $10/ton in 2014."

In addition to the upgrade of Arch Coal, the firm bumped its FY13 EPS estimate from ($1.50) to ($1.35) and FY14 EPS from ($1.20) to (1.05).

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 $5.84 yesterday.

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