Bottom In Coal Stocks?

Arch Coal Inc. is the second largest domestic coal producer and one of the world's largest coal producers. It sold more than 156 million tons of coal in 2011. Last week, the company reported its third quarter 2012 results, which were better than what the market and analysts were anticipating. Reported revenues for the quarter were $1.09 billion, down 9% YOY, beating analysts' revenue expectations of $1 billion. Reported net income for the quarter was $45.8 million or 22 cents per share as compared to $8.9 million or 4 cents per share in the third quarter of 2011. The company was able to beat earnings estimates as analysts were expecting a loss of 16 cents per share. In 3Q 2012, EBITDA increased to $257 million, up 21% YOY. Better than expected results for the company in 3Q 2012 were mainly driven by cost control efforts, rising natural gas prices and favorable weather, leading to better domestic thermal coal demand.

Going forward, we believe that the performance of the coal industry will improve due to recent developments such as rising natural gas prices. Nevertheless, there are some factors that could adversely impact the coal industry. These factors include the trend in natural gas prices and environmental regulations that could discourage the use of coal.

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