Arch Coal's Earnings Signal a Silent Bull Market

| About: Arch Coal (ARCH)

Funny, just 2 weeks ago Arch Coal (ACI) reiterated guidance but it was taken as a "warning" by the skittish herd on Wall Street [Apr 7: Arch Coal "Warns"]; the stock dropped to $47 where I added to my stake (some of which I sold the next day up $4). Now the stock is in the $62s after a strong earnings report. I continue to be a huge bull on this space which I outlined last fall as the forgotten commodity [Sept 13: Crude at $80? What to Buy]

If you are new to coal, a series of posts here [Dec 6: Coal Stocks Quietly in a Bull Market] - while this group will be subject to a selloff when the masses hit commodity stocks sooner or later, this remains one of my long term bull themes. Aside from the world's energy needs, this was one of my "weak dollar" plays before "weak dollar" plays became sexy. I continue to believe we are in the early innings of a multi-year move in this sector, and just like the fertilizers a year ago, analysts expectations for future years are way off base.

  • Arch Coal Inc (ACI) posted a sharp jump in first-quarter profit on Monday on strong demand and higher prices for the fuel, and raised its full-year forecast.
  • Net earnings were $81.1 million, or 56 cents per share, compared with $28.7 million, or 20 cents per share, in the same quarter of 2007, the St. Louis-based company said. Revenue jumped 22 percent to $699.4 million.
  • The earnings easily topped analysts' average forecast of 47 cents per share on revenues of $674 million. Arch increased its full year forecast to $2.40 to $2.80 per share from its earlier view of $2.00 to $2.50 per share. (very strange considering they reiterated the $2.00 to $2.50 on April 7th!)
  • Arch said it sold 34.3 million tons of coal in the first quarter, up from 31.4 million tons a year earlier, while its operating margin rose to $3.32 per ton from $2.11.
  • Prices have almost doubled in the past year. A ton of eastern U.S. coal that sold for $44.75 last April, is now selling for $85.50. Powder River Basin coal from Wyoming and Montana has risen from $8 per ton to $15 in the last 12 months, according to the industry newsletter Coal & Energy Price Report.

Disclosure: Long Arch Coal in fund; no personal position