Company ProfileÂ (excerpt from Reuters): Cloud Peak Energy Inc., incorporated on July 31, 2008, is a producer of coal in the United States of America and the Powder River Basin (PRB). In the PRB, the Company owns and operates three surface coal mines: the Antelope Mine, the Cordero Rojo Mine and the Spring Creek Mine. The Company’s segments include Owned and Operated Mines, and Logistics and Related Activities. The Company’s Owned and Operated Mines segment includes its Antelope Mine, Cordero Rojo Mine, and Spring Creek Mine. The Logistics and Related Activities segment includes the services it provides to its international and certain of its domestic customers where it delivers coal to the customer at a terminal or the customer’s plant or other delivery point, remote from its mine site. The Logistics and Related Activities segment provides services, including the purchase of coal from third parties or from its Owned and Operated Mines segment, as well as the contracting and coordination of the transportation and other handling services from third-party operators, which are rail and terminal companies.
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||$199,161,800||Fail|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||2.22||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||-103.93%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||-4.99||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||0.20||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||2.22||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||2.76||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Fail|
|4. Dividend Record||Currently Pays Dividend||Fail|
|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||-$7.87|
|MG Value based on 0% Growth||-$4.61|
|Market Implied Growth Rate||-6.75%|
|% of Intrinsic Value||N/A|
Cloud Peak Energy Inc. 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, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. 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 $1.71 in 2014 to an estimated $-0.54 for 2018. 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 Cloud Peak Energy Inc. revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -4.99, which was below the industry average of 46.07, 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 $-5.61.
Cloud Peak Energy Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$5.61|
|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||3/1/2018|
|Total Current Assets||$267,971,000|
|Total Current Liabilities||$120,929,000|
|Shares Outstanding (Diluted Average)||75,329,000|
Earnings Per Share History
|Next Fiscal Year Estimate||-$0.68|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||-$0.54|
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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.