The Zacks Analyst Blog Highlights: Arch Coal, Peabody Energy Corporation, Dun & Bradstreet, Equifax and Moody’s Corp

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Aug 01, 2011, 09:30 ET

CHICAGO, Aug. 1, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Arch Coal Inc. (NYSE: ACI), Peabody Energy Corporation (NYSE: BTU), Dun & Bradstreet Corp. (NYSE: DNB) Equifax Inc. (NYSE: EFX) and Moody's Corp (NYSE: MCO).

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Here are highlights from Friday's Analyst Blog:

Mixed Results from Arch Coal

Coal producer Arch Coal Inc. (NYSE: ACI) reported net adjusted earnings of 44 cents per share for the second quarter 2011, much lower than the Zacks Consensus Estimate of 62 cents but a penny ahead of the year-ago earnings of 43 cents.

GAAP net earnings during the quarter were 6 cents per share versus 41 cents per share reported in the year-ago quarter. The difference between GAAP and operating earnings was due to a 1 cent impact of amortization of acquired sales contract, 28 cents of acquisition and transition costs, 28 cents of bridge financing cost related to acquisitions and 19 cents of gain from tax adjustments.

Guidance

The company expects 2011 total sales volumes in the range of 160 million to 165 million tons, with metallurgical coal sales comprising 9 million tons. The current guidance incorporates expected volumes from its newly acquired coal assets.

Arch Coal revised its adjusted EBITDA guidance for 2011, which is now expected in the range of $1.08−$1.2 billion, up from $0.93−$1.05 billion earlier.

Depreciation, depletion and amortization expenses of the company are expected in a band of $452 million to $470 million in 2011.

The company now expects adjusted 2011 earnings to range between $1.75 and $2.15 per share, while the GAAP figure, which includes amortization of coal supply agreements, is expected to be in the range of $1.49 to $1.93.

Peer Update

Arch Coal's primary competitor, Peabody Energy Corporation (NYSE: BTU), announced operating earnings for the second quarter 2011 of $1.11 per share versus 69 cents per share in the year-ago quarter, reflecting a growth of 61.0%. The results of the company also surpassed the Zacks Consensus Estimate of $1.04 per share.

Peabody's quarterly revenue, at $2.01 billion, increased 15% year over year on the back of robust coal prices across the board and higher Australian volumes.

Our Take

Despite a year-over-year decline in volume of tons sold, Arch Coal was able to surpass our revenue expectation on the strength of higher sales prices per ton. The strong metallurgical coal prices and expected increase in demand in Europe and Asia are boosting the coal industry fundamentals this fiscal year. Arch Coal having a dominant presence in the coal industry only stands to benefit from these positive fundamentals.

During the reported quarter the company successfully closed its merger deal with International Coal Group Inc. This deal ensured Arch's reach in every major U.S. coal supply basin, making it the largest U.S. metallurgical coal producer. We believe the synergies from this strategic acquisition will enhance value for the company's stakeholders in the coming years.

Based in St. Louis, Missouri, Arch Coal engages in the production and sale of steam and metallurgical coal. The company also ships coal to domestic and international steel manufacturers as well as international power producers. Arch Coal currently retains a Zacks #3 Rank (short-term Hold rating).

D&B Beats, Reaffirms Outlook

Dun & Bradstreet Corp. (NYSE: DNB) reported second quarter earnings, before non-core gains and one-time charges, of $1.35 per share, which surpassed the Zacks Consensus Estimate of $1.27.

Operating Performance

Earnings per share (EPS) on a non-GAAP basis increased 10.0% year over year. Net income, before non-core gains and one-time charges, was $67.1 million, up 7.0% year over year, with net margin expanding 30 basis points (bps) to 16.1%.

In the second quarter, GAAP operating expenses increased 11.1% year over year to $143.7 million. However, selling and administrative expenses were down 3.4% year over year to $154.3 million.

Non-GAAP operating income was $108.4 million, up 2.0% year over year, while operating margin dipped 80 bps to 26.0% in the second quarter, reflecting higher total operating costs (77.9% as a percentage of revenue, up 120 bps from the prior-year quarter). Additional expenses related to the Strategic Technology Investment led to the increase in total operating expense.

2011 Guidance

D&B expects core revenues to increase 5.0% to 8.0%, before the effect of foreign exchange. Operating income is expected to increase 2.0% to 6.0%, before non-core gains and charges.

The company expects earnings to grow in the 6.0% to 10.0% range, before non-core gains and charges. D&B expects free cash flow of between $240 million and $270 million, excluding the impact of legacy tax matters but including the new Strategic Technology Investment.

Currently, the Zacks Consensus Estimate is pegged at $6.04 per share for fiscal 2011, in line with the lower end of the guided range. For the third quarter of 2011, the Zacks Consensus Estimate is pegged at $1.34.

Recommendation

We have a positive stance on D&B over the long term, due to its high-margin business model, strong international growth potential, emerging market growth opportunities, strategic investments, incremental cost savings and new product pipeline.

However, a sluggish macro environment in North America and weakness in Europe pose concerns. Moreover, increasing competition from companies including Equifax Inc. (NYSE: EFX) and Moody's Corp (NYSE: MCO) may hurt its profitability going forward.

We maintain our Neutral recommendation on a long-term basis (6-12 months). Currently, D&B has a Zacks #3 Rank, which implies a Hold rating over the short term (1-3 months).

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