Shares of Arch Coal Inc (NYSE:ARCH) responded to the nearly 30% decline in met coal pricing since May.

The upcoming positive catalysts could lend significant upside, even against the current weakness in global met coal pricing, according to BMO Capital Markets.

The Analyst

BMO’s David Gagliano upgraded Arch Coal from Market Perform to Outperform while lowering the price target from $105 to $100.

The Thesis

The price target has been lowered to reflect uncertainty in global met coal prices, Gagliano said in the upgrade note.

The analyst mentioned three potentially positive catalysts that have meaningfully improved the risk-reward for Arch Coal’s shares.

Although there is no indication of met coal prices having bottomed, they are “approaching the high end of the cost curve globally,” Gagliano wrote in the note.

The second catalyst mentioned by the analyst is the company continuing with its pace of share repurchases. While there are speculations of buybacks slowing, this is unlikely to be the case in 2019. It is “more likely a 2020 event, and likely to prove temporary,” Gagliano said.

He cited underappreciated Leer Mine productivity gains as the third potential catalyst. Estimating the Leer Mine’s contribution to Arch Coal’s total EBITDA at 50%, Gagliano mentioned that the mine was entering the “sweet spot” of its coal seam, which could boost productivity.

Price Action

Shares of Arch Coal were up 1.30% at $77.15 at the time of publishing.

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