Why Arch Coal (ACI) Stock Is Tanking On Monday

NEW YORK (TheStreet) -- Shares of Arch Coal Inc. (ACI) are down by -6.22% to $3.39 as the coal industry reacts poorly to Deutsche Bank (DB) downgrading Peabody Energy (BTU) to "hold" from "buy."

The firm lowered its rating on the company, and cut its price target on the stock to $19 from $23, based on "lower realized coal prices" and its estimates cost pressures will continue into the future.

Other stocks declining as a result of the downgrade include Alpha Natural Resources (ANR), down by -4.52% to $3.59, Rhino Resource Partners (RNO), down by -1.20% to $14.02 and Walter Energy Inc. (WLT), lower by -2.29% to $6.18.

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Separately, 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 some concerns, 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 unimpressive growth in net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally high debt management risk."

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

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 77.2% when compared to the same quarter one year ago, falling from -$70.05 million to -$124.14 million.
  • 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 6.75%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -16.86% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$40.28 million or 193.03% 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 2.42 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 2.68, which shows the ability to cover short-term cash needs.
  • You can view the full analysis from the report here: ACI Ratings Report
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