Why More Than Half of Analysts Rate Cloud Peak Energy a ‘Hold’



Analyst ratings

Of the ten analysts covering Cloud Peak Energy (CLD), 20% (two analysts) gave the company a “buy” rating, 60% (six analysts) gave it a “hold” rating, and 20% (two analysts) gave it a “sell” rating.

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Price target

Since the release of Cloud Peak Energy’s 3Q15 results, six analysts have revised their estimates down. Cloud Peak’s consensus 12-month target price is $2.90. The target price indicates an 87.1% return potential, considering a $1.55 closing price on February 8, 2016.

Consensus estimates

Analysts expect Cloud Peak Energy (CLD) to report muted 4Q15 earnings figures. They see a nearly 3% reduction in total revenues and more than 100% reduction in operating profit.

Analysts expect reduced EBITDA (earnings before interest, taxes, depreciation, and amortization) margins. They expect a slight increase in gross margins due to effective cost management and decreased direct costs associated with coal production.

Analysts also anticipate that Cloud Peak Energy will report a loss per share of $0.11 compared to EPS (earnings per share) of $0.24 in 3Q15.

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Among major coal (KOL) mining companies, analysts recommend a “hold” for Cloud Peak Energy. The recommendation was due chiefly to its relatively strong balance sheet, low production costs, and manageable debt on the books compared to peers Arch Coal (ACIIQ), Alpha Natural Resources (ANRZQ), and Peabody Energy (BTU).

Analyst recommendations

Analyst recommendations are important, as they give a basis for company and industry performance moving ahead. Analysts screen a myriad of available information and use their industry knowledge to provide an investment analysis. They consider the probable business environment and various macro factors to arrive at a recommendation.

Analyst recommendations can have a significant impact on stock performance. Investors should carefully analyze the points that support analyst recommendations before making a final decision about investing in a particular stock.

In the next parts of this series, we’ll analyze analysts’ expectations and find out whether these recommendations are conservative or optimistic.


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