Natural Resource Partners LP Valuation – February 2017 $NRP

Benjamin 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 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  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 stock analysis showing a specific look at how Natural Resource Partners LP (NRP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Natural Resource Partners L.P. owns, operates, manages and leases a portfolio of mineral properties in the United States, including interests in coal, trona and soda ash, crude oil and natural gas, construction aggregates, frac sand and other natural resources. The Company’s Coal, Hard Mineral Royalty and Other segment consists primarily of coal royalty, coal related transportation and processing assets, aggregate and industrial minerals royalty assets and timber. Its coal reserves are primarily located in Appalachia, the Illinois Basin and the Western United States. Its Soda Ash segment consists of the Company’s non-controlling equity interest in a trona ore mining operation and soda ash refinery in the Green River Basin, Wyoming. The VantaCore segment consists of its construction materials business. The Oil and Gas segment consists of its working interests, royalty interests and overriding royalty interests in oil and natural gas properties.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of NRP – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $453,810,698 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.76 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -164.45% Fail
6. Moderate PEmg Ratio PEmg < 20 -8.70 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.97 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.76 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -20.70 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg -$4.25
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth -$61.63
MG Value based on 0% Growth -$36.13
Market Implied Growth Rate -8.60%
Current Price $37.00
% of Intrinsic Value N/A

Natural Resource Partners LP does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $13.84 in 2012 to an estimated $-4.25 for 2016. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Natural Resource Partners LP revealed the company was trading below its Graham Number of $47.66. The company pays a dividend of $1.8 per share, for a yield of 4.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was -8.7, which was below the industry average of 47.18, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-98.76.

Natural Resource Partners LP receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$98.76
Graham Number $47.66
PEmg -8.70
Current Ratio 0.76
PB Ratio 2.97
Current Dividend $1.80
Dividend Yield 4.86%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $160,965,000
Total Current Liabilities $211,300,000
Long-Term Debt $1,041,984,000
Total Assets $1,521,406,000
Intangible Assets $53,907,000
Total Liabilities $1,369,007,000
Shares Outstanding (Diluted Average) 12,232,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $8.10
Dec2015 -$45.75
Dec2014 $9.42
Dec2013 $15.39
Dec2012 $19.70
Dec2011 $5.00
Dec2010 $15.40
Dec2009 $11.70
Dec2008 $19.50
Dec2007 $12.60
Dec2006 $17.40
Dec2005 $16.95
Dec2004 $11.45
Dec2003 $7.95
Dec2002 $1.40

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$4.25
Dec2015 -$6.70
Dec2014 $12.88
Dec2013 $14.22
Dec2012 $13.84
Dec2011 $11.55
Dec2010 $14.99
Dec2009 $15.07
Dec2008 $16.36
Dec2007 $14.29
Dec2006 $13.76
Dec2005 $10.48
Dec2004 $6.22
Dec2003 $3.02
Dec2002 $0.47

Recommended Reading:

Other ModernGraham posts about the company

Natural Resource Partners LP Analysis – October 2015 Update $NRP
10 Companies in the Spotlight This Week – 12/28/13
ModernGraham Valuation: Natural Resource Partners L.P. (NRP)

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.






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