ARCH shares shrug off dismal Q3 production and shrinking met margins

Share price appears to be following CEIX higher, signaling that the market thinks the CEIX/ARCH merger is a lock

ARCH had a pretty tough Q3, with production from key coking coal mines down q/q, coking coal costs up and margins further hurt by declining coking coal prices. And the PRB thermal assets likely lost a bit of money or broke even at best. So, of course, over the last couple weeks as MSHA production numbers were reported, the stock price is…up??

ARCH appears to be following CEIX share prices, which is logical as ARCH shareholders receive 1.326 shares of CEIX stock in the upcoming merger, and as we wrote earlier this week, CIEX put in a strong quarter. At current CEIX prices of nearly $109/sh, ARCH should be trading right around $144/sh (assuming the merger is a lock), and that’s pretty much where ARCH is trading. Apparently no one in the market sees a chance that the deal will be scuttled. Clearly though, that valuation of ARCH at 1.326 CEIX shares looked a lot better to CEIX shareholders before a dismal Q3.

So, while we go through the ARCH Q3 EPS math below, and expect ARCH to miss EPS consensus estimates of $1.38/sh, the stock price will likely continue to follow CEIX share action until the merger is finalized.