UPDATE: Nomura Reiterates Reduce Ratings, Lowers PT on Arch Coal on Structural Challenges

In a report published Wednesday, Nomura reiterated its Reduce rating on Arch Coal

, but slightly lowered its price target from $6.00 to $5.00. Nomura noted, “High leverage and long path for PRB recovery are risks. We believe Arch Coal is facing difficult headwinds in 2013 owing to a weak contract position in PRB and challenging markets for lower-quality coking coals in Appalachia. Given continued weak fundamentals, we are moderately reducing ASP and volume targets and now forecast 2013 EBITDA of $425mm and 2014 EBITDA of $558mm, ~25% below the Street. We find the stock expensive trading at 12.7x 2013E EV/EBITDA and 9.6x 2014E EV/EBITDA. Our revised $5 price target assumes ACI trades at 7.2x our mid-cycle EBITDA forecast of $714mm, our projection for 2015. PRB vintage issue remains a risk into 2014 and potentially 2015. The main lever to grow EBITDA in 2014 will be via higher met ASPs on volumes near 10mt in 2014, which we model at $105/ton vs. $94/ton in 2013.” Arch Coal closed on Tuesday at $6.04.