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Cloud Peak Energy: How Does the Company’s Near Future Look?

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Beating analyst estimates

While its sales came in lower than analyst estimates, Cloud Peak Energy (CLD) beat analyst estimates on the adjusted net losses front in 2Q15. The company’s adjusted net losses, at $16.9 million, were lower than Wall Street analyst estimates of $20.0 million.

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Near-term expectations

While 1H15 shipments were marred by weather-related issues and demand-side issues (low natural gas prices and plant a shutdown at a major customer), the company expects 2H15 shipments to partially cover up for its lower shipments in 1H15. The company now expects to sell 74 million–78 million tons in 2015, implying shipments of around 40 million tons in 2H15 at the mid-point of the guidance. Most of these tons are pre-priced at around $12.76 per ton. For 2016, the company has contracted 51 million tons so far at an average price of $13.16 per ton.

Any more steam left?

Cloud Peak Energy (CLD) is one of the better performers in the beaten-down coal sector. The company has managed to hold on during difficult times due to prudent financial management and locational advantages. The company operates solely in the low-cost Powder River Basin (or PRB) region in Wyoming and Montana—unlike Peabody Energy (BTU), which operates in the Illinois Basin as well. Illinois Basin coal prices have been under tremendous pressure lately. While PRB coal is also under pressure, Cloud Peak Energy operates primarily under medium-to-long term contracts, insulating it from the volatility in the spot market.

Appalachian coal producers (KOL) like Arch Coal (ACI) and Consol Energy (CNX) face huge competition from natural gas. However, Consol has diversified into natural gas production, reducing its exposure to the coal market. Overall, Cloud Peak Energy looks strong enough to last in this painful waiting game.

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