For Immediate Release
Chicago, IL – September 18, 2009 – Zacks.com announces the latest Industry Outlook. Today, Zacks Equity Research discusses the Coal sector, including Peabody Coal (BTU), Arch Coal Inc. (ACI), Rio Tinto (RTP) and Walter Energy (WLT).
Here is the latest on the Coal sector:
The larger coal players with strong balance sheets will be able to capitalize on the current market environment in the form of acquisitions. With asset prices coming down from mid-’08 levels and smaller producers feeling the strain on margins, this represents opportunities to acquire reserves on the cheap.
In particular, we like companies with exposure to the international coal markets as well as the Powder River Basin (PRB) in the U.S. Companies like Peabody Coal (BTU) and Arch Coal Inc. (ACI) look attractive currently. Both have recently engaged in long-term growth acquisitions.
Peabody is the largest pure-play coal producer, with significant leverage to the Australian export market. Due to the high quality of coal produced and its proximity to Asia (emerging markets), Australian seaborne coal trades at a premium to all other coals.
Peabody would benefit especially when China and other Asian emerging markets begin to rebound. The stimulus packages enacted by the federal government during the recent months should start to pay dividends toward the end of ’09.
Arch Coal has a significant amount of reserves and is a top-three producer in the PRB. In our opinion, PRB coal will be in great demand over the coming years. The significant coal-fired power plant build-out will increase annual thermal coal demand by more than 60 MM tons; approximately 50% of this new demand will be met by PRB supply. Its likely acquisition of Rio Tinto’s (RTP) Jacobs Mine will increase ACI’s PRB market share while gaining operating synergies.
We also like companies with leverage to metallurgical coal markets. When the global economy starts to turn around, likely in the beginning of 2010, demand for steel and metallurgical coal should rise. Companies like Walter Energy (WLT) should fare well in this environment.
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