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Lehman Boosts Arch Coal to Strong Buy

Lehman Brothers upgraded Arch Coal (ACI) to strong buy.

Analyst Peter Ward says weak sentiment towards the energy sector has driven shares down. Among many investors, there exists perception of a tight correlation between natural gas and price/coal fundamentals. Empirically, the correlation is much weaker than many would suspect. Even after recent coal price increases, the delivered cost of coal per million British Thermal Unit is about $1.50. Unless the price of gas falls substantially below $2.00 per million British Thermal Unit, Ward's bullish thesis on coal volumes and prices will remain intact. Given the recent success in negotitating higher priced long-term contracts, Ward raised the $2.00 2002 EPS estimate to $2.39, and raised the 2003 estimate to $2.65. He has a $42 target.

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