Cloud Peak Energy Inc Valuation – July 2018 $CLD

Company Profile (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:

ModernGraham Valuation of CLD – July 2018

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 $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

EPSmg -$0.54
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$7.87
MG Value based on 0% Growth -$4.61
Market Implied Growth Rate -6.75%
Current Price $2.71
% 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
Graham Number $0.00
PEmg -4.99
Current Ratio 2.22
PB Ratio 0.20
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $267,971,000
Total Current Liabilities $120,929,000
Long-Term Debt $406,261,000
Total Assets $1,689,135,000
Intangible Assets $2,280,000
Total Liabilities $690,302,000
Shares Outstanding (Diluted Average) 75,329,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$0.68
Dec2017 -$0.09
Dec2016 $0.35
Dec2015 -$3.36
Dec2014 $1.29
Dec2013 $0.85
Dec2012 $2.85
Dec2011 $3.13
Dec2010 $1.06
Dec2009 $6.49
Dec2008 $1.05

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.54
Dec2017 -$0.38
Dec2016 -$0.22
Dec2015 -$0.02
Dec2014 $1.71
Dec2013 $2.24
Dec2012 $2.93
Dec2011 $2.76
Dec2010 $2.29
Dec2009 $2.44
Dec2008 $0.35

Recommended Reading:

Other ModernGraham posts about the company

Cloud Peak Energy Inc Valuation – Initial Coverage $CLD

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Disclaimer:

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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