This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Arch Coal: Value Trap Or Value Play? [PART 1]

Arch Coal Inc (ACI - Get Report) 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.

Arch Coal

Argument in favor of Arch Coal

Let’s start with the argument in favor of Arch Coal Inc (ACI - Get Report) 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 - Get Report) 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.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
ACI $1.03 0.00%
AAPL $130.28 0.00%
FB $81.53 0.00%
GOOG $565.06 0.00%
TSLA $218.42 0.00%

Markets

DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs