Is NRP Stock Trading at a Discount Compared to Its Peers?

A company’s valuation helps us compare a company with its peers. Specifically, the EV-to-EBITDA¹ multiple represents the cost of a company’s common stock. A higher EV-to-EBITDA multiple implies that the company in question is overvalued as compared to its peers.

A company’s EV-to-EBITDA multiple isn’t impacted by its capital structure. As coal (KOL) mining is a capital-intensive industry, companies in this industry raise capital through a variety of sources to fund their expansion plans. As a result, the capital structure can vary significantly.

The EV-to-EBITDA multiple is useful for comparing the value of one company to that of another. In comparison, the forward EV-to-EBITDA multiple takes into account the company’s EBITDA for the next 12 months.

On December 27, 2016, Alliance Resource Partners (ARLP) had the lowest forward EV-to-EBITDA multiple value of 4.0x. It was followed by Westmoreland Coal’s (WLB) forward EV-to-EBITDA value of ~5.4x and CNX Coal Resources’ (CNXC) 5.7x. In contrast, NRP had a forward EV-to-EBITDA value of 7.0x.

As of December 27, 2016, analysts had a consensus 12-month target price of $29.0 for Natural Resource Partners (NRP). The price targets of NRP peers Alliance Resource Partners (ARLP), CNX Coal Resources (CNXC), and Foresight Energy (FELP) were $24.6, $21.1, and $7.0, respectively.

Considering its closing price on December 27, 2016, CNX Coal Resources has the highest return potential of 9.0% among NRP peers. In contrast, NRP closed above the analyst consensus 12-month price target on December 27.

1. Enterprise value to earnings before interest, tax, depreciation, and amortization