Arch Coal Inc (ACI) currently looks to be a contrarian value play in an unloved industry, but is the company a value trap? In this three part series, I’m going to take a look at both sides of the argument for and against the company’s s uitability as a value play and attempt to arrive at a suitable conclusion.
Argument in favor of Arch Coal
Let’s start with the argument in favor of Arch Coal Inc (ACI) as a value investment.Why does Arch look attractive? Well, the company is cheap. In particular, at the end of the company’s fiscal third quarter, book-value-per-share stood at $12.06 and tangible book-value-per-share stood at $10.52. At present levels this indicates that Arch is trading at a tangible-book-value-per-share of 0.39 and a book-value-per share of 0.34. That being said, Arch Coal Inc (ACI) has not reported a profit for the last 12 months. Still, Arch’s level of debt is not worrying and the company has plenty of headroom to fund a turnaround. At the end of the company’s third quarter, Arch reported total debt of $5.1 billion and cash of $1.4 billion; net debt of $3.7 billion. With total assets of $9.5 billion this gives Arch a net-debt-to-asset ratio of 39%. However, this debt pile comes with a quarterly interest bill of approximately $95 million, which the company has not been able to cover with EBITDA for the last three quarters. What’s more, Arch has a net-debt-to-TTM-EBITDA ratio of 10.2x. Nevertheless, the company remains liquid with total liquidity of $1.6 billion at the end of the third quarter, $1.4 billion of which was cash and equivalents, $450 million is restricted cash tied a portion of the company’s senior debt. The company has no debt maturities to cover until August 2016.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV
- Using Tesla Math, GM’s Buick Unit Should Be Worth $1.1 Trillion
- No, Tesla Does Not Outsell the Mercedes S-Class in the U.S. or Globally
- The 10 Most 'Socialist' States in America
- TheStreet Seeks Retraction From Washington Post on Steven Pearlstein Column
- Will Bendgate Have Any Long-Term Effect on Apple's iPhone 6 Plus Legacy?
Rates from Bankrate.com
- Credit Cards