A Coal Stock That Is Burning It Up

After a hiatus, energy stocks have returned to the top of the charts with coal stocks leading the way. The top 10% of performing industries for last week were:

Last time Coal Stocks were on top of the list, they stayed near the top for almost a month, but none met our strict criteria. This time around we found a few that passed our test, starting with:

ARCH COAL (ACI)

Please pardon the pun, but coal has been hot. There is no other way to put it. One company that is right in the thick of it is Arch Coal (ACI). ACI is the second largest coal producer in the United States. It recently reported record first-quarter earnings of 56 cents per share, a dime above expectations. Additionally, it guided higher for the full year on both EPS and EBITDA. Operating margins increased a mammoth 57% due to rising coal prices.

We at The Correct Call foresee the good times continuing for quite some time. Global demand is growing and will keep growing for the foreseeable future. Also, supply has been hampered by production difficulties and inclement weather. Economics 101 says that this spells even higher prices going forward.

The future of the coal industry as a whole is extremely bullish. Even though it is considered a “dirty” fuel, it is a much cheaper and less volatile source of energy than crude oil. It is likely that demand will keep increasing as crude prices rise. China recently became a net importer of coal and should be again for 2008.

In terms of the ACI’s numbers, the company has posted an average upside surprise of 3.3% over the past four quarters. Current-year estimates have increased 23 cents to $2.60 per share over the past 90 days. On a valuation basis, we like the stock’s PEG ratio of 1.1.

We see the stock at $75 over the next year.

Disclosure:none

Comments

[seeksome]

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