Arch Coal Inc (NYSE:ACI) is expected to post flat growth in sales for both 2012 and 2013. Arch’s 2011 acquisition of International Coal has helped the coal company gain more exposure to higher-priced markets – including the Appalachian – and also boosted exposure to metallurgical coal. Arch has seen the same pressures as Alpha, which puts the stock in similar valuation territory at 0.35x sales, compared to Alpha’s 0.3x multiple. The big difference, though, is Arch’s 5-year expected earnings growth rate, which comes in at a negative 3% CAGR.
Walter Energy. Inc. (NYSE:WLT) is one of the U.S.’s top producers and exporters of coal to the steel industry. The company is facing double-edged pressures, from compressed coal prices and a global slowdown that has put steel demand in bearish territory. Still, as mentioned above, we expect the steel market to pick up a bit next year. It is also expected to see profitability pressures in the interim thanks to rising coal stockpiles. In order to hedge the slowdown, Walter expects to cut CapEx to $220 million in 2013, down from $400 million in 2012. Despite being down over 40% year to date, Walter still sports a forward P/E of 35x.
Alliance Resource Partners, L.P. (NASDAQ:ARLP) is another diversified producer of coal in the U.S. Alliance is focused on providing coal to major U.S. utility companies. This exposure leads us to remain cautious, as the company missed earnings by 50% last quarter, and trades the highest of the five stocks listed here on a P/S basis at 1.1x. Moreover, Alliance is not only one of the richest coal stocks on a valuation basis, but it also has one of the lowest expected earnings growth rates, with a 5-year EPS CAGR of 1.5%. Billionaire Jim Simons upped his stake almost 60% last quarter (see Jim Simons’ top picks).
To recap: Alpha Natural Resources is down the most (-54.6%) of the five coal stocks year to date, with Arch in close second (-51.6%). Still, we believe that Alpha has the most upside potential. For more coal coverage, continue reading below: