Fired Up: Arch Coal Gets Upgraded to Strong Buy at Lehman

By Dan Bernstein ,

After climbing from January through the middle of May, the coal sector, along with the rest of the energy sector, went tumbling back to earth.

Lehman Brothers

analyst Peter Ward thinks some stocks may have fallen too far.

In a research note this morning, Ward upgraded shares of

Arch Coal

(ACI) - Get Report

to strong buy from buy, citing overly negative sentiment on the sector. "Weak sentiment toward the energy sector has driven Arch Coal shares down to a level that we believe represents excellent value," Ward wrote. Shares of Arch closed at $22.75 on Friday, well below their closing level of $37.67 on May 22. The 52-week high is $38.40. In morning trading, Arch gained 7.4% to $24.43.

"Sentiment toward coal equities has changed from extremely positive to extremely negative," in the last month, the analyst wrote. "Ironically, we have witnessed very little change in coal fundamentals."

Even following the decline of the last month, Arch Coal is still up 184% in the past year. "Understandably, there exists a perception among investors that coal's resurgence over the past year was driven largely by soaring natural gas prices. We disagree," Ward wrote.

The analyst raised his earnings forecast for fiscal 2002 and 2003, while keeping his fiscal 2001 bottom-line estimate at 74 cents a share. Ward now expects earnings of $2.20 a share in 2002, up from his prior estimate of $2, and he expects $2.65 a share in 2003. Each full fiscal-year earnings estimate is still below Wall Street's consensus expectations. "We believe our estimates remain conservative," Ward wrote.

Loading ...