Westmoreland Coal Company: A promising look at the future
Earnings overview: Westmoreland Coal Company in 3Q 2014 (Part 7 of 7)
The year so far
So far, Westmoreland Coal Company (WLB) has remained on the guided path. The company’s adjusted EBITDA of $41.7 million for 3Q 2014 came in within its guidance of $40 to $45 million, in spite of weather shocks. The stock market has rewarded the company heavily so far this year by more than doubling its share price to $39.68. Brean Capital maintained its buy rating on the company after the 3Q 2014 results.
What to expect from 4Q14
Westmoreland Coal Company plans to spend more on capital expenditure during 4Q to take advantage of favorable pricing for used equipment. Management, however, is maintaining its adjusted EBITDA guidance at $172 to $190 million for 2013—$181 million at the midpoint.
The company generated adjusted EBITDA of $110.4 million during the first nine months of 2014. So it expects to generate EBITDA of $71 million in 4Q—at the midpoint. While not unachievable, we find the guidance optimistic. But winter demand may help the company in its last quarter.
2015 and beyond
Westmoreland Coal Company looks to be in a solid position to survive the industry downturn. With the addition of full-year EBITDA from Canadian operations, the company may generate adjusted EBITDA of around $230 million, and free cash flows of $80 to $100 million, in 2015. The priority in front of the management should be to get rid of non-core assets—read Roanoke Valley Energy Facility power plants—that are adding variability to otherwise predictable cash flows.
Westmoreland Coal Company remains one of our favorite names among coal producers (KOL). The company’s business model strongly differentiates it from peers such as Peabody Energy Corporation (BTU), Arch Coal Inc. (ACI), and even Cloud Peak Energy, Inc. (CLD).
Although its stock price has doubled since the beginning of 2014, the company’s free cash flow yield is still much higher than the master limited partnership, or MLP, average. This means the stock may have further upside potential.
For more analysis on the coal industry and its producers, visit Market Realist’s Coal section.
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