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Where Cloud Peak Energy’s Stock Is Trading next to Peers

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Valuations

A company’s valuation helps us compare the company with its industry peers. Here, the cost of a company’s stock is represented by the EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. A high EV-to-EBITDA multiple implies that the company is overvalued when compared with peers.

But a company’s EV-to-EBITDA multiple is not affected by its capital structure. Since the coal (KOL) industry is capital-intensive, companies in this industry have to raise capital through a variety of sources to fund their expansion plans. This results in a significant variation in capital structure among such companies.

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The forward EV-to-EBITDA multiple

The forward EV-to-EBITDA multiple considers the company’s EBITDA for the next 12 months. On August 17, 2017, Peabody Energy (BTU) had the lowest forward EV-to-EBITDA multiple of 3.4x, followed by Arch Coal’s (ARCH) 3.7x, and Westmoreland Coal’s (WLB) 4.1x. Cloud Peak Energy (CLD) had a forward EV-to-EBITDA multiple of 5.5x.

As of August 17, 2017, analysts had a consensus 12-month target price of $4.3 for CLD. The price targets of peers Arch Coal (ARCH), Alliance Resource Partners (ARLP), Peabody Energy (BTU), and Westmoreland Coal (WLB) were $96.9, $26.5, $34.9, and $6.4, respectively, as of the same date.

Return potential

Given its closing price on August 17, 2017, Westmoreland Coal (WLB) has the highest return potential of 206.5% among peers, while CLD has an upside potential of 44.3%.

To follow the earnings reports of Cloud Peak and its peers, check out Market Realist’s Coal page.

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