Intrinsic value of Arch Coal, Inc. - ARCH

Previous Close

$76.64

  Intrinsic Value

$995.10

stock screener

  Rating & Target

str. buy

+999%

Previous close

$76.64

 
Intrinsic value

$995.10

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of ARCH stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  16.20
  15.08
  14.07
  13.16
  12.35
  11.61
  10.95
  10.36
  9.82
  9.34
  8.91
  8.51
  8.16
  7.85
  7.56
  7.31
  7.08
  6.87
  6.68
  6.51
  6.36
  6.23
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.59
  5.53
Revenue, $m
  2,849
  3,279
  3,740
  4,233
  4,755
  5,308
  5,889
  6,499
  7,137
  7,804
  8,499
  9,222
  9,975
  10,758
  11,571
  12,417
  13,295
  14,208
  15,158
  16,145
  17,172
  18,241
  19,354
  20,514
  21,723
  22,984
  24,299
  25,672
  27,107
  28,605
Variable operating expenses, $m
  1,365
  1,571
  1,792
  2,027
  2,278
  2,542
  2,821
  3,113
  3,419
  3,738
  4,071
  4,417
  4,778
  5,153
  5,543
  5,948
  6,368
  6,806
  7,260
  7,733
  8,225
  8,737
  9,271
  9,826
  10,405
  11,009
  11,639
  12,297
  12,984
  13,702
Fixed operating expenses, $m
  1,042
  1,065
  1,089
  1,113
  1,137
  1,162
  1,188
  1,214
  1,241
  1,268
  1,296
  1,324
  1,354
  1,383
  1,414
  1,445
  1,477
  1,509
  1,542
  1,576
  1,611
  1,646
  1,683
  1,720
  1,757
  1,796
  1,836
  1,876
  1,917
  1,959
Total operating expenses, $m
  2,407
  2,636
  2,881
  3,140
  3,415
  3,704
  4,009
  4,327
  4,660
  5,006
  5,367
  5,741
  6,132
  6,536
  6,957
  7,393
  7,845
  8,315
  8,802
  9,309
  9,836
  10,383
  10,954
  11,546
  12,162
  12,805
  13,475
  14,173
  14,901
  15,661
Operating income, $m
  442
  643
  860
  1,092
  1,340
  1,603
  1,880
  2,172
  2,478
  2,798
  3,132
  3,480
  3,843
  4,222
  4,615
  5,024
  5,450
  5,893
  6,355
  6,835
  7,336
  7,857
  8,401
  8,968
  9,560
  10,178
  10,824
  11,499
  12,205
  12,944
EBITDA, $m
  581
  802
  1,042
  1,298
  1,572
  1,861
  2,167
  2,488
  2,825
  3,178
  3,545
  3,929
  4,329
  4,745
  5,178
  5,629
  6,097
  6,585
  7,092
  7,621
  8,171
  8,745
  9,343
  9,967
  10,617
  11,297
  12,007
  12,749
  13,524
  14,336
Interest expense (income), $m
  0
  20
  32
  46
  60
  75
  90
  107
  125
  143
  163
  183
  204
  226
  249
  273
  298
  323
  350
  378
  407
  437
  468
  500
  534
  570
  606
  645
  685
  726
  770
Earnings before tax, $m
  422
  610
  814
  1,033
  1,266
  1,513
  1,773
  2,047
  2,334
  2,635
  2,949
  3,276
  3,617
  3,972
  4,342
  4,727
  5,127
  5,543
  5,977
  6,428
  6,899
  7,389
  7,900
  8,434
  8,991
  9,572
  10,180
  10,815
  11,479
  12,174
Tax expense, $m
  114
  165
  220
  279
  342
  408
  479
  553
  630
  711
  796
  885
  977
  1,073
  1,172
  1,276
  1,384
  1,497
  1,614
  1,736
  1,863
  1,995
  2,133
  2,277
  2,427
  2,584
  2,749
  2,920
  3,099
  3,287
Net income, $m
  308
  446
  594
  754
  924
  1,104
  1,294
  1,494
  1,704
  1,923
  2,153
  2,392
  2,641
  2,900
  3,170
  3,450
  3,743
  4,047
  4,363
  4,693
  5,036
  5,394
  5,767
  6,157
  6,563
  6,988
  7,431
  7,895
  8,380
  8,887

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,057
  2,367
  2,701
  3,056
  3,433
  3,832
  4,252
  4,692
  5,153
  5,634
  6,136
  6,659
  7,202
  7,767
  8,355
  8,965
  9,599
  10,259
  10,944
  11,657
  12,398
  13,170
  13,974
  14,811
  15,684
  16,595
  17,545
  18,536
  19,571
  20,653
Adjusted assets (=assets-cash), $m
  2,057
  2,367
  2,701
  3,056
  3,433
  3,832
  4,252
  4,692
  5,153
  5,634
  6,136
  6,659
  7,202
  7,767
  8,355
  8,965
  9,599
  10,259
  10,944
  11,657
  12,398
  13,170
  13,974
  14,811
  15,684
  16,595
  17,545
  18,536
  19,571
  20,653
Revenue / Adjusted assets
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
  1.385
Average production assets, $m
  1,040
  1,197
  1,365
  1,545
  1,736
  1,937
  2,149
  2,372
  2,605
  2,848
  3,102
  3,366
  3,641
  3,927
  4,224
  4,532
  4,853
  5,186
  5,533
  5,893
  6,268
  6,658
  7,064
  7,488
  7,929
  8,389
  8,869
  9,370
  9,894
  10,441
Working capital, $m
  162
  187
  213
  241
  271
  303
  336
  370
  407
  445
  484
  526
  569
  613
  660
  708
  758
  810
  864
  920
  979
  1,040
  1,103
  1,169
  1,238
  1,310
  1,385
  1,463
  1,545
  1,630
Total debt, $m
  507
  711
  931
  1,164
  1,413
  1,675
  1,951
  2,241
  2,544
  2,861
  3,191
  3,535
  3,893
  4,264
  4,651
  5,053
  5,470
  5,904
  6,355
  6,824
  7,312
  7,820
  8,348
  8,900
  9,474
  10,073
  10,698
  11,350
  12,032
  12,743
Total liabilities, $m
  1,354
  1,558
  1,777
  2,011
  2,259
  2,522
  2,798
  3,088
  3,391
  3,707
  4,038
  4,381
  4,739
  5,111
  5,497
  5,899
  6,316
  6,750
  7,201
  7,670
  8,158
  8,666
  9,195
  9,746
  10,320
  10,919
  11,544
  12,197
  12,878
  13,590
Total equity, $m
  704
  810
  924
  1,045
  1,174
  1,311
  1,454
  1,605
  1,762
  1,927
  2,099
  2,277
  2,463
  2,656
  2,857
  3,066
  3,283
  3,508
  3,743
  3,987
  4,240
  4,504
  4,779
  5,066
  5,364
  5,675
  6,000
  6,339
  6,693
  7,063
Total liabilities and equity, $m
  2,058
  2,368
  2,701
  3,056
  3,433
  3,833
  4,252
  4,693
  5,153
  5,634
  6,137
  6,658
  7,202
  7,767
  8,354
  8,965
  9,599
  10,258
  10,944
  11,657
  12,398
  13,170
  13,974
  14,812
  15,684
  16,594
  17,544
  18,536
  19,571
  20,653
Debt-to-equity ratio
  0.720
  0.880
  1.010
  1.110
  1.200
  1.280
  1.340
  1.400
  1.440
  1.480
  1.520
  1.550
  1.580
  1.610
  1.630
  1.650
  1.670
  1.680
  1.700
  1.710
  1.720
  1.740
  1.750
  1.760
  1.770
  1.770
  1.780
  1.790
  1.800
  1.800
Adjusted equity ratio
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  308
  446
  594
  754
  924
  1,104
  1,294
  1,494
  1,704
  1,923
  2,153
  2,392
  2,641
  2,900
  3,170
  3,450
  3,743
  4,047
  4,363
  4,693
  5,036
  5,394
  5,767
  6,157
  6,563
  6,988
  7,431
  7,895
  8,380
  8,887
Depreciation, amort., depletion, $m
  139
  160
  182
  206
  231
  258
  287
  316
  347
  380
  414
  449
  485
  524
  563
  604
  647
  691
  738
  786
  836
  888
  942
  998
  1,057
  1,119
  1,183
  1,249
  1,319
  1,392
Funds from operations, $m
  446
  605
  777
  960
  1,155
  1,362
  1,581
  1,811
  2,051
  2,303
  2,566
  2,840
  3,126
  3,423
  3,733
  4,055
  4,390
  4,738
  5,101
  5,479
  5,872
  6,282
  6,709
  7,155
  7,620
  8,106
  8,614
  9,144
  9,699
  10,279
Change in working capital, $m
  23
  24
  26
  28
  30
  31
  33
  35
  36
  38
  40
  41
  43
  45
  46
  48
  50
  52
  54
  56
  59
  61
  63
  66
  69
  72
  75
  78
  82
  85
Cash from operations, $m
  424
  581
  750
  932
  1,126
  1,331
  1,548
  1,776
  2,015
  2,265
  2,527
  2,799
  3,083
  3,379
  3,686
  4,007
  4,340
  4,686
  5,047
  5,422
  5,813
  6,221
  6,646
  7,089
  7,551
  8,034
  8,539
  9,066
  9,617
  10,193
Maintenance CAPEX, $m
  -119
  -139
  -160
  -182
  -206
  -231
  -258
  -287
  -316
  -347
  -380
  -414
  -449
  -485
  -524
  -563
  -604
  -647
  -691
  -738
  -786
  -836
  -888
  -942
  -998
  -1,057
  -1,119
  -1,183
  -1,249
  -1,319
New CAPEX, $m
  -145
  -157
  -168
  -180
  -191
  -202
  -212
  -223
  -233
  -243
  -254
  -264
  -275
  -286
  -297
  -309
  -321
  -333
  -346
  -360
  -375
  -390
  -406
  -423
  -441
  -460
  -480
  -501
  -523
  -547
Cash from investing activities, $m
  -264
  -296
  -328
  -362
  -397
  -433
  -470
  -510
  -549
  -590
  -634
  -678
  -724
  -771
  -821
  -872
  -925
  -980
  -1,037
  -1,098
  -1,161
  -1,226
  -1,294
  -1,365
  -1,439
  -1,517
  -1,599
  -1,684
  -1,772
  -1,866
Free cash flow, $m
  160
  285
  422
  570
  729
  898
  1,077
  1,267
  1,466
  1,675
  1,893
  2,121
  2,360
  2,608
  2,866
  3,135
  3,415
  3,706
  4,009
  4,324
  4,653
  4,995
  5,352
  5,724
  6,112
  6,517
  6,940
  7,382
  7,844
  8,327
Issuance/(repayment) of debt, $m
  189
  204
  219
  234
  248
  262
  276
  290
  303
  317
  330
  344
  358
  372
  386
  402
  417
  434
  451
  469
  488
  508
  529
  551
  574
  599
  625
  652
  681
  712
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  189
  204
  219
  234
  248
  262
  276
  290
  303
  317
  330
  344
  358
  372
  386
  402
  417
  434
  451
  469
  488
  508
  529
  551
  574
  599
  625
  652
  681
  712
Total cash flow (excl. dividends), $m
  349
  489
  641
  804
  977
  1,160
  1,354
  1,556
  1,769
  1,991
  2,223
  2,465
  2,717
  2,979
  3,252
  3,536
  3,832
  4,140
  4,460
  4,793
  5,141
  5,503
  5,881
  6,275
  6,686
  7,116
  7,565
  8,034
  8,525
  9,039
Retained Cash Flow (-), $m
  -97
  -106
  -114
  -122
  -129
  -136
  -144
  -151
  -158
  -165
  -172
  -179
  -186
  -193
  -201
  -209
  -217
  -225
  -234
  -244
  -254
  -264
  -275
  -286
  -299
  -311
  -325
  -339
  -354
  -370
Prev. year cash balance distribution, $m
  98
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  350
  383
  527
  683
  848
  1,024
  1,210
  1,406
  1,611
  1,827
  2,052
  2,287
  2,531
  2,786
  3,052
  3,328
  3,615
  3,914
  4,225
  4,549
  4,887
  5,239
  5,606
  5,988
  6,388
  6,805
  7,240
  7,695
  8,171
  8,669
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  336
  351
  459
  562
  657
  743
  817
  879
  926
  958
  974
  976
  962
  935
  896
  846
  787
  721
  651
  578
  505
  435
  367
  305
  248
  199
  155
  119
  89
  65
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Arch Coal, Inc. produces and sells thermal and metallurgical coal from surface and underground mines located in the United States. As of December 31, 2015, it operated or contracted out the operation of 16 mines; and owned or controlled approximately 2.5 billion tons of proven and probable recoverable reserves. The company also owned or controlled, primarily through long-term leases, approximately 28,541 acres of coal land in Ohio; 21,832 acres of coal land in Maryland; 46,556 acres of coal land in Virginia; 380,471 acres of coal land in West Virginia; 106,059 acres of coal land in Wyoming; 273,299 acres of coal land in Illinois; 129,043 acres of coal land in Kentucky; 10,000 acres of coal land in Montana; 21,802 acres of coal land in New Mexico; 426 acres of coal land in Pennsylvania; and 18,443 acres of coal land in Colorado. In addition, it owns properties in Alabama, Indiana, Washington, Arkansas, California, Utah, and Texas. The company sells coal to power plants, steel mills, and industrial facilities. Arch Coal, Inc. was founded in 1969 and is headquartered in St. Louis, Missouri.

FINANCIAL RATIOS  of  Arch Coal, Inc. (ARCH)

Valuation Ratios
P/E Ratio 0
Price to Sales 0
Price to Book 0
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -100%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 0%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 0%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 0%
Asset Turnover 0
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 0%
EBITDA Margin - 3 Yr. Avg. 0%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. 0%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 0%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 0%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

ARCH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARCH stock intrinsic value calculation we used $2452 million for the last fiscal year's total revenue generated by Arch Coal, Inc.. The default revenue input number comes from 0001 income statement of Arch Coal, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ARCH stock valuation model: a) initial revenue growth rate of 16.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ARCH is calculated based on our internal credit rating of Arch Coal, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Arch Coal, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ARCH stock the variable cost ratio is equal to 47.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1020 million in the base year in the intrinsic value calculation for ARCH stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.4% for Arch Coal, Inc..

Corporate tax rate of 27% is the nominal tax rate for Arch Coal, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ARCH stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ARCH are equal to 36.5%.

Life of production assets of 7.5 years is the average useful life of capital assets used in Arch Coal, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ARCH is equal to 5.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $704.821 million for Arch Coal, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 17.727 million for Arch Coal, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Arch Coal, Inc. at the current share price and the inputted number of shares is $1.4 billion.

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