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Arch Resources (ARCH) Hits 52-Week High, Can the Run Continue?

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Have you been paying attention to shares of Arch Resources (ARCH)? Shares have been on the move with the stock up 22.8% over the past month. The stock hit a new 52-week high of $125.22 in the previous session. Arch Resources has gained 30.7% since the start of the year compared to the 15.3% move for the Zacks Oils-Energy sector and the 28% return for the Zacks Coal industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on February 15, 2022, Arch Resources reported EPS of $13.19 versus consensus estimate of $13.03 while it beat the consensus revenue estimate by 17.28%.

For the current fiscal year, Arch Resources is expected to post earnings of $38.87 per share on $2.69 billion in revenues. This represents an 89.89% change in EPS on a 21.65% change in revenues. For the next fiscal year, the company is expected to earn $16.69 per share on $2.04 billion in revenues. This represents a year-over-year change of -57.06% and -24.16%, respectively.

Valuation Metrics

Arch Resources may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Arch Resources has a Value Score of B. The stock's Growth and Momentum Scores are B and D, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 3.1X current fiscal year EPS estimates, which is not in-line with the peer industry average of 4.7X. On a trailing cash flow basis, the stock currently trades at 143.6X versus its peer group's average of 3.6X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Arch Resources currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Arch Resources passes the test. Thus, it seems as though Arch Resources shares could have a bit more room to run in the near term.


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