B. Riley Securities analyst Lucas N. Pipes reiterated the Buy rating on Arch Resources, Inc. (NYSE:ARCH), lowering the price target to $188 from $197.
According to the analyst, Arch Resources has lowered its coking coal sales volume guidance and increased cost guidance for the full year, indicating a less optimistic outlook.
Pipes notes that for 3Q, EBITDA is expected to be 10% lower than 2Q levels, falling below the analyst’s and consensus estimates.
The revisions are primarily driven by ongoing challenges at Leer South, where the company cited constrained advance rates in the first longwall district.
Leer South failed to match the output of its older namesake, Leer, consistently.
Since the beginning of 2022, Leer has averaged over one million tons of production versus Leer South’s 650k tons per quarter.
The analyst believes the company is unlikely to achieve the 10 million watermark before 2025 and has lowered the met segment volumes estimate for 2024.
The analyst now estimates realizations of $149.79/ton in 3Q (from $152.33/ ton) and $153.98/ton in 4Q (from $153.79/ton), respectively.
According to the analyst, cutting rates at Leer South deteriorated again in 3Q, and narrowing the performance gap between Leer and Leer South has remained elusive.
Pipes has lowered the production estimates and increased cost estimates for both 2023 and 2024, leading to a reduction in the price target.
On the positive side, investors remain highly focused on Arch’s capital return framework, and there is a likelihood of changes in the coming quarters, according to the analyst.
According to the analyst, advance rates at Leer South are expected to converge towards Leer’s over time, indicating potential improvement in performance.
Price Action: ARCH shares closed lower by 0.43% to $154.37 on Tuesday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
