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Stock Strategist

Attractive Assets and Cost Control Make Cloud Peak a Winner

Its position in the Powder River Basin gives the firm a narrow moat.


Even after reduced production at one mine resulted in a slight decrease in our fair value estimate,  Cloud Peak Energy (CLD) still looks undervalued to us, trading at enough of a discount to merit a 5-star rating.

Cloud Peak is the lowest-cost player in the lowest-cost coal mining region in the world: the Powder River Basin. We think PRB coal prices will increase significantly from current levels over the next few years as PRB coal is a much more cost-effective option than natural gas for generating electricity. Also, current PRB coal prices lie well below the operating costs of marginal PRB operators. We believe above-average coal inventories at power plants are keeping the lid on coal prices, but also believe inventories will be slowly worked down.

Elizabeth Collins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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