After spending time with Arch Coal (NYSE:ACI) executives while traveling with them, FBR Capital Markets said it is maintaining its 'outperform' rating on the coming, as well as their $39 price target.
FBR said, "(We) came away with our view reinforced that the company is well positioned in the more stable U.S. domestic market and can capitalize on the growing international market... Arch Coal is benefiting from rising met coal demand and expects to sell up to 7 MTs this year and over 8 MTs in 2011. Management expects to export about 5.5 MTs in 2010... Arch Coal will generate, approximately, $1,280 million of free cash flow through 2012. Management stated it will repay debt, buy back stock, develop its reserves, and look for acquisitions; the highest return will capture future capital."
Another factor in the decision is the safety measures implemented by Arch Coal which has highly reduced accidents.
FBR added, "With the UBB and other mining disasters known, investors were laser focused on Arch Coal's strong safety culture and what new underground rules were likely to be implemented. Arch's management has installed a behavior-based safety system that pushes decision making down to all levels and has resulted in a 50% decline in lost-time incidents."
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