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Why Coal Stocks Slumped This Morning

By Brian D. Pacampara, CFA - Mar 25, 2014 at 11:06AM

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Does this analyst make a good case or from is it just more noise Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Arch Coal (NYSE: ACI) and Alpha Natural Resources (NYSE: ANR) both fell about 3% on Tuesday after Jefferies downgraded the pair of coal companies from buy to hold.

So what: Along with the downgrade, analyst Peter Ward lowered his price target for Arch Coal to $4.75 (from $8) and for Alpha Natural to $4.50 (from $7.50), suggesting that he sees little to no upside in either stock going forward. So while contrarians might be attracted to the sector's slump over the past year, Ward's call might reflect a strengthening sense on Wall Street that coal prices aren't about to turn anytime soon.

Now what: Jefferies lowered its 2014 EPS estimate for Arch from ($0.60) to ($0.80) and for Alpha Natural from ($1.75) to ($1.85). "In short, sluggish met coal prices and the threat of another bust in gas prices are too much for us to continue recommending the higher levered names of Arch and Alpha," Ward said in a note to investors. Of course, with Arch and Alpha Natural shares down more than 20% and 40%, respectively, from their 52-week highs, much of that bearishness might already be baked in. 

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