Merrill removes Arch Coal 5% convertible preferred from model portfolio

By Ronda Fears

Nashville, July 12 - Merrill Lynch & Co. removed Arch Coal Inc.'s 5% convertible preferred due 2008 from its convertible model portfolio on Monday due to the firm's equity analyst Daniel Roling's downgrade of the underlying stock to neutral from buy.

The convertible was added to the portfolio model as an equity alternative in January, but Merrill convertible analyst Marc Malloy noted in a report Monday that at 90.31 for the convertible versus $34.47 for the stock, it is fairly valued. So, considering that the convertible is deep in-the-money and Roling's reduced equity outlook, it was removed.

Still, Malloy went on to say in the report, "Although we are disappointed with Arch Coal's quarter, we do look for better results from Arch for the second half of 2004 as coal industry fundamentals remain strong."

On Friday, Arch Coal warned that it expects to report second quarter earnings per share of approximately 20 cents - at the low end of its previous guidance for 20 to 30 cents. Both estimates exclude charges related to the termination of hedge accounting for interest rate swaps.

The company is scheduled to announce results before the market opens on July 26.

Roling, in downgrading Arch Coal stock, noted that the company's estimate compares to the First Call analyst consensus earnings per share of 26 cents and Merrill Lynch's estimated EPS of 30 cents.

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