Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Stocks for Using A Benjamin Graham Value Investing Strategy – JanuaryÂ 2017.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how Natural Resource Partners LP (NRP)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ 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.
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. Â In addition,Â here is a post detailing what can be found within each individual company’s valuation.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||-$61.63|
|MG Value based on 0% Growth||-$36.13|
|Market Implied Growth Rate||-8.60%|
|% 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|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2016|
|Total Current Assets||$160,965,000|
|Total Current Liabilities||$211,300,000|
|Shares Outstanding (Diluted Average)||12,232,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$8.10|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||-$4.25|
Other ModernGraham posts about the company
|Natural Resource Partners LP Analysis â€“ October 2015 Update $NRP|
|10 Companies in the Spotlight This Week â€“ 12/28/13|
|ModernGraham Valuation: Natural Resource Partners L.P. (NRP)|
Other ModernGraham posts about related companies
The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.