Consol Energy Inc. Annual Valuation – 2014 $CNX

220px-Consol_Energy_Logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Enterprising Investor – November 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Consol Energy Inc. (CNX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance):  CONSOL Energy Inc. (CONSOL Energy) is a producer of coal and natural gas for global energy and raw material markets, which include the electric power generation industry and the steelmaking industry. During the year ended December 31, 2011, the Company produced 62.6 million tons of high-British thermal unit (Btu) bituminous coal from 12 mining complexes in the United States. In addition, it provides energy services, including river and dock services, terminal services, industrial supply services, coal waste disposal services and land resource management services. The Company operates in two segments: Coal and Gas. In December 2013, the Company announced that it has completed the sale of Consolidation Coal Company (CCC) subsidiary, which includes all five of its longwall coal mines in West Virginia, to a subsidiary of Murray Energy Corporation.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - FAIL

Valuation Summary

Key Data:

Recent Price $41.51
MG Value $7.31
MG Opinion Overvalued
Value Based on 3% Growth $26.39
Value Based on 0% Growth $15.47
Market Implied Growth Rate 7.15%
Net Current Asset Value (NCAV) -$22.32
PEmg 22.81
Current Ratio 1.06
PB Ratio 1.82

Balance Sheet – September 2014

Current Assets $1,325,000,000
Current Liabilities $1,247,000,000
Total Debt $3,279,000,000
Total Assets $11,719,000,000
Intangible Assets $0
Total Liabilities $6,464,000,000
Outstanding Shares 230,200,000

Earnings Per Share

2014 (estimate) $0.72
2013 $2.87
2012 $1.70
2011 $2.76
2010 $1.60
2009 $2.95
2008 $2.40
2007 $1.45
2006 $2.20
2005 $3.13
2004 $1.09

Earnings Per Share – ModernGraham

2014 (estimate) $1.82
2013 $2.37
2012 $2.18
2011 $2.35
2010 $2.14
2009 $2.42

Dividend History


Consol Energy does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings growth over the last ten years, and the high PEmg ratio.  The Enterprising Investor is concerned by the level of debt relative to the current assets and the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.14 in 2010 to only an estimated $1.82 for 2014.  This lack of demonstrated growth does not support the market’s implied estimate of 7.15% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Consol Energy Inc. (CNX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Consol Energy Inc. (CNX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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