Why Arch Coal (ACI) Is Down Today

NEW YORK (TheStreet) -- Arch Coal  (ACI) ticked downward 0.53% to $4.66 at 9:53 a.m. on Tuesday after news that the U.S. Supreme Court refusal to restore a permit for a mountaintop mining project in West Virginia. The refusal halted the company's challenge to the Environmental Protection Agency's decision to block the permit.

The Supreme Court maintained a lower court ruling that the EPA could invalidate Clean Water Act permits issued years ago; Arch Coal's Mingo Logan wants to restore a permit from the Army Corps of Engineers in 2007.

The Clean Water Act "does not remotely grant EPA a retroactive trump card that trivializes the Corps' authority and destroys the regulated community's ability to rely on the permit," Logan said in court papers, according to Bloomberg

President Barack Obama's administration has said the project would harm wildlife in the area due to the filling of seven miles of waterways.

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TheStreet Ratings team rates ARCH COAL INC as a "sell" with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate ARCH COAL INC (ACI) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, weak operating cash flow, generally disappointing historical performance in the stock itself and unimpressive growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ARCH COAL INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for ARCH COAL INC is currently extremely low, coming in at 7.08%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -51.60% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$130.85 million or 454.66% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • The debt-to-equity ratio is very high at 2.29 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Despite the company's weak debt-to-equity ratio, the company has managed to keep a very strong quick ratio of 2.85, which shows the ability to cover short-term cash needs.
  • The share price of ARCH COAL INC has not done very well: it is down 21.10% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • You can view the full analysis from the report here: ACI Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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