Intrinsic value of Husky Energy Inc. - HSE

Previous Close

$14.63

  Intrinsic Value

$4.28

stock screener

  Rating & Target

str. sell

-71%

  Value-price divergence*

-72%

Previous close

$14.63

 
Intrinsic value

$4.28

 
Up/down potential

-71%

 
Rating

str. sell

 
Value-price divergence*

-72%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of HSE 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 2016), $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 14.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -21.08
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  12,919
  20,670
  31,936
  47,760
  69,297
  97,768
  134,409
  180,416
  236,898
  304,830
  385,025
  478,114
  584,540
  704,567
  838,296
  985,687
  1,146,591
  1,320,777
  1,507,963
  1,707,847
  1,920,127
  2,144,526
  2,380,811
  2,628,802
  2,888,387
  3,159,524
  3,442,252
  3,736,688
  4,043,031
  4,361,557
  4,692,624
Variable operating expenses, $m
 
  27,120
  41,864
  62,573
  90,760
  128,022
  175,975
  236,187
  310,107
  399,013
  503,967
  625,729
  765,013
  922,098
  1,097,115
  1,290,013
  1,500,594
  1,728,559
  1,973,538
  2,235,135
  2,512,955
  2,806,637
  3,115,873
  3,440,430
  3,780,159
  4,135,008
  4,505,027
  4,890,369
  5,291,293
  5,708,163
  6,141,445
Fixed operating expenses, $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 operating expenses, $m
  11,613
  27,120
  41,864
  62,573
  90,760
  128,022
  175,975
  236,187
  310,107
  399,013
  503,967
  625,729
  765,013
  922,098
  1,097,115
  1,290,013
  1,500,594
  1,728,559
  1,973,538
  2,235,135
  2,512,955
  2,806,637
  3,115,873
  3,440,430
  3,780,159
  4,135,008
  4,505,027
  4,890,369
  5,291,293
  5,708,163
  6,141,445
Operating income, $m
  1,306
  -6,450
  -9,928
  -14,814
  -21,463
  -30,253
  -41,566
  -55,770
  -73,209
  -94,182
  -118,942
  -147,615
  -180,473
  -217,531
  -258,819
  -304,325
  -354,003
  -407,782
  -465,575
  -527,288
  -592,828
  -662,110
  -735,062
  -811,627
  -891,773
  -975,485
  -1,062,775
  -1,153,681
  -1,248,262
  -1,346,605
  -1,448,820
EBITDA, $m
  3,768
  -2,549
  -3,939
  -5,890
  -8,547
  -12,058
  -16,577
  -22,251
  -29,217
  -37,595
  -47,486
  -58,966
  -72,092
  -86,895
  -103,388
  -121,566
  -141,411
  -162,893
  -185,979
  -210,631
  -236,812
  -264,487
  -293,629
  -324,214
  -356,229
  -389,668
  -424,538
  -460,851
  -498,632
  -537,917
  -578,748
Interest expense (income), $m
  349
  276
  739
  1,412
  2,357
  3,644
  5,344
  7,533
  10,282
  13,656
  17,714
  22,504
  28,065
  34,423
  41,593
  49,581
  58,386
  67,998
  78,403
  89,585
  101,525
  114,206
  127,611
  141,726
  156,540
  172,047
  188,244
  205,133
  222,722
  241,022
  260,050
Earnings before tax, $m
  950
  -6,726
  -10,667
  -16,225
  -23,820
  -33,897
  -46,910
  -63,304
  -83,490
  -107,838
  -136,656
  -170,119
  -208,538
  -251,954
  -300,412
  -353,906
  -412,389
  -475,780
  -543,978
  -616,873
  -694,353
  -776,316
  -862,673
  -953,354
  -1,048,313
  -1,147,532
  -1,251,019
  -1,358,814
  -1,470,984
  -1,587,627
  -1,708,870
Tax expense, $m
  28
  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
Net income, $m
  922
  -6,726
  -10,667
  -16,225
  -23,820
  -33,897
  -46,910
  -63,304
  -83,490
  -107,838
  -136,656
  -170,119
  -208,538
  -251,954
  -300,412
  -353,906
  -412,389
  -475,780
  -543,978
  -616,873
  -694,353
  -776,316
  -862,673
  -953,354
  -1,048,313
  -1,147,532
  -1,251,019
  -1,358,814
  -1,470,984
  -1,587,627
  -1,708,870

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,319
  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
  32,260
  49,451
  76,401
  114,258
  165,783
  233,896
  321,553
  431,618
  566,742
  729,259
  921,113
  1,143,813
  1,398,421
  1,685,568
  2,005,493
  2,358,104
  2,743,041
  3,159,753
  3,607,567
  4,085,758
  4,593,605
  5,130,446
  5,695,721
  6,289,001
  6,910,016
  7,558,669
  8,235,052
  8,939,445
  9,672,322
  10,434,348
  11,226,374
Adjusted assets (=assets-cash), $m
  30,941
  49,451
  76,401
  114,258
  165,783
  233,896
  321,553
  431,618
  566,742
  729,259
  921,113
  1,143,813
  1,398,421
  1,685,568
  2,005,493
  2,358,104
  2,743,041
  3,159,753
  3,607,567
  4,085,758
  4,593,605
  5,130,446
  5,695,721
  6,289,001
  6,910,016
  7,558,669
  8,235,052
  8,939,445
  9,672,322
  10,434,348
  11,226,374
Revenue / Adjusted assets
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
Average production assets, $m
  26,114
  41,775
  64,542
  96,523
  140,050
  197,590
  271,641
  364,621
  478,771
  616,062
  778,136
  966,268
  1,181,356
  1,423,931
  1,694,197
  1,992,074
  2,317,261
  2,669,290
  3,047,594
  3,451,558
  3,880,576
  4,334,088
  4,811,620
  5,312,810
  5,837,429
  6,385,398
  6,956,791
  7,551,847
  8,170,965
  8,814,707
  9,483,794
Working capital, $m
  1,125
  661
  1,022
  1,528
  2,218
  3,129
  4,301
  5,773
  7,581
  9,755
  12,321
  15,300
  18,705
  22,546
  26,825
  31,542
  36,691
  42,265
  48,255
  54,651
  61,444
  68,625
  76,186
  84,122
  92,428
  101,105
  110,152
  119,574
  129,377
  139,570
  150,164
Total debt, $m
  5,627
  13,434
  25,669
  42,856
  66,248
  97,172
  136,968
  186,938
  248,284
  322,066
  409,168
  510,274
  625,866
  756,231
  901,477
  1,061,562
  1,236,324
  1,425,511
  1,628,819
  1,845,917
  2,076,479
  2,320,206
  2,576,840
  2,846,189
  3,128,130
  3,422,619
  3,729,697
  4,049,491
  4,382,217
  4,728,177
  5,087,757
Total liabilities, $m
  14,644
  22,451
  34,686
  51,873
  75,265
  106,189
  145,985
  195,955
  257,301
  331,083
  418,185
  519,291
  634,883
  765,248
  910,494
  1,070,579
  1,245,341
  1,434,528
  1,637,836
  1,854,934
  2,085,496
  2,329,223
  2,585,857
  2,855,206
  3,137,147
  3,431,636
  3,738,714
  4,058,508
  4,391,234
  4,737,194
  5,096,774
Total equity, $m
  17,616
  27,000
  41,715
  62,385
  90,518
  127,707
  175,568
  235,663
  309,441
  398,175
  502,928
  624,522
  763,538
  920,320
  1,094,999
  1,287,525
  1,497,700
  1,725,225
  1,969,732
  2,230,824
  2,508,108
  2,801,224
  3,109,864
  3,433,795
  3,772,869
  4,127,034
  4,496,339
  4,880,937
  5,281,088
  5,697,154
  6,129,600
Total liabilities and equity, $m
  32,260
  49,451
  76,401
  114,258
  165,783
  233,896
  321,553
  431,618
  566,742
  729,258
  921,113
  1,143,813
  1,398,421
  1,685,568
  2,005,493
  2,358,104
  2,743,041
  3,159,753
  3,607,568
  4,085,758
  4,593,604
  5,130,447
  5,695,721
  6,289,001
  6,910,016
  7,558,670
  8,235,053
  8,939,445
  9,672,322
  10,434,348
  11,226,374
Debt-to-equity ratio
  0.319
  0.500
  0.620
  0.690
  0.730
  0.760
  0.780
  0.790
  0.800
  0.810
  0.810
  0.820
  0.820
  0.820
  0.820
  0.820
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
  0.830
Adjusted equity ratio
  0.533
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  922
  -6,726
  -10,667
  -16,225
  -23,820
  -33,897
  -46,910
  -63,304
  -83,490
  -107,838
  -136,656
  -170,119
  -208,538
  -251,954
  -300,412
  -353,906
  -412,389
  -475,780
  -543,978
  -616,873
  -694,353
  -776,316
  -862,673
  -953,354
  -1,048,313
  -1,147,532
  -1,251,019
  -1,358,814
  -1,470,984
  -1,587,627
  -1,708,870
Depreciation, amort., depletion, $m
  2,462
  3,900
  5,989
  8,923
  12,917
  18,195
  24,989
  33,519
  43,992
  56,587
  71,457
  88,648
  108,381
  130,636
  155,431
  182,759
  212,593
  244,889
  279,596
  316,657
  356,016
  397,623
  441,433
  487,414
  535,544
  585,816
  638,238
  692,830
  749,630
  808,689
  870,073
Funds from operations, $m
  1,953
  -2,826
  -4,678
  -7,302
  -10,904
  -15,702
  -21,921
  -29,784
  -39,499
  -51,251
  -65,199
  -81,471
  -100,157
  -121,318
  -144,981
  -171,147
  -199,797
  -230,891
  -264,382
  -300,216
  -338,337
  -378,694
  -421,240
  -465,940
  -512,769
  -561,715
  -612,782
  -665,984
  -721,354
  -778,939
  -838,797
Change in working capital, $m
  -18
  248
  360
  506
  689
  911
  1,172
  1,472
  1,807
  2,174
  2,566
  2,979
  3,406
  3,841
  4,279
  4,717
  5,149
  5,574
  5,990
  6,396
  6,793
  7,181
  7,561
  7,936
  8,307
  8,676
  9,047
  9,422
  9,803
  10,193
  10,594
Cash from operations, $m
  1,971
  -3,074
  -5,038
  -7,808
  -11,593
  -16,613
  -23,094
  -31,256
  -41,306
  -53,425
  -67,766
  -84,450
  -103,563
  -125,159
  -149,260
  -175,864
  -204,945
  -236,465
  -270,372
  -306,612
  -345,130
  -385,874
  -428,801
  -473,876
  -521,076
  -570,392
  -621,829
  -675,406
  -731,157
  -789,131
  -849,391
Maintenance CAPEX, $m
  0
  -2,396
  -3,833
  -5,921
  -8,855
  -12,849
  -18,128
  -24,921
  -33,451
  -43,924
  -56,519
  -71,389
  -88,648
  -108,381
  -130,636
  -155,431
  -182,759
  -212,593
  -244,889
  -279,596
  -316,657
  -356,016
  -397,623
  -441,433
  -487,414
  -535,544
  -585,816
  -638,238
  -692,830
  -749,630
  -808,689
New CAPEX, $m
  -1,705
  -15,661
  -22,767
  -31,981
  -43,527
  -57,540
  -74,051
  -92,981
  -114,150
  -137,291
  -162,074
  -188,132
  -215,087
  -242,575
  -270,266
  -297,878
  -325,186
  -352,029
  -378,304
  -403,965
  -429,018
  -453,512
  -477,532
  -501,190
  -524,620
  -547,968
  -571,393
  -595,056
  -619,118
  -643,742
  -669,087
Cash from investing activities, $m
  632
  -18,057
  -26,600
  -37,902
  -52,382
  -70,389
  -92,179
  -117,902
  -147,601
  -181,215
  -218,593
  -259,521
  -303,735
  -350,956
  -400,902
  -453,309
  -507,945
  -564,622
  -623,193
  -683,561
  -745,675
  -809,528
  -875,155
  -942,623
  -1,012,034
  -1,083,512
  -1,157,209
  -1,233,294
  -1,311,948
  -1,393,372
  -1,477,776
Free cash flow, $m
  2,603
  -21,131
  -31,638
  -45,710
  -63,975
  -87,001
  -115,272
  -149,158
  -188,907
  -234,639
  -286,359
  -343,971
  -407,299
  -476,115
  -550,162
  -629,172
  -712,891
  -801,087
  -893,565
  -990,173
  -1,090,805
  -1,195,403
  -1,303,956
  -1,416,499
  -1,533,109
  -1,653,904
  -1,779,039
  -1,908,699
  -2,043,106
  -2,182,504
  -2,327,167
Issuance/(repayment) of debt, $m
  -1,288
  8,410
  12,236
  17,187
  23,392
  30,923
  39,796
  49,970
  61,346
  73,783
  87,102
  101,106
  115,592
  130,365
  145,246
  160,085
  174,761
  189,187
  203,308
  217,098
  230,562
  243,726
  256,635
  269,349
  281,941
  294,489
  307,078
  319,794
  332,726
  345,960
  359,580
Issuance/(repurchase) of shares, $m
  0
  16,826
  25,382
  36,895
  51,953
  71,087
  94,771
  123,399
  157,268
  196,572
  241,408
  291,714
  347,554
  408,736
  475,091
  546,432
  622,565
  703,305
  788,485
  877,965
  971,638
  1,069,432
  1,171,313
  1,277,285
  1,387,387
  1,501,697
  1,620,324
  1,743,413
  1,871,135
  2,003,693
  2,141,317
Cash from financing (excl. dividends), $m  
  -1,335
  25,236
  37,618
  54,082
  75,345
  102,010
  134,567
  173,369
  218,614
  270,355
  328,510
  392,820
  463,146
  539,101
  620,337
  706,517
  797,326
  892,492
  991,793
  1,095,063
  1,202,200
  1,313,158
  1,427,948
  1,546,634
  1,669,328
  1,796,186
  1,927,402
  2,063,207
  2,203,861
  2,349,653
  2,500,897
Total cash flow (excl. dividends), $m
  1,276
  4,105
  5,979
  8,372
  11,370
  15,008
  19,295
  24,211
  29,707
  35,716
  42,151
  48,849
  55,848
  62,985
  70,175
  77,345
  84,435
  91,405
  98,227
  104,890
  111,395
  117,755
  123,992
  130,135
  136,219
  142,281
  148,364
  154,508
  160,755
  167,149
  173,730
Retained Cash Flow (-), $m
  -1,030
  -16,826
  -25,382
  -36,895
  -51,953
  -71,087
  -94,771
  -123,399
  -157,268
  -196,572
  -241,408
  -291,714
  -347,554
  -408,736
  -475,091
  -546,432
  -622,565
  -703,305
  -788,485
  -877,965
  -971,638
  -1,069,432
  -1,171,313
  -1,277,285
  -1,387,387
  -1,501,697
  -1,620,324
  -1,743,413
  -1,871,135
  -2,003,693
  -2,141,317
Prev. year cash balance distribution, $m
 
  716
  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
 
  -12,005
  -19,402
  -28,523
  -40,583
  -56,078
  -75,476
  -99,189
  -127,561
  -160,857
  -199,257
  -242,865
  -291,707
  -345,751
  -404,916
  -469,087
  -538,130
  -611,900
  -690,257
  -773,074
  -860,242
  -951,676
  -1,047,321
  -1,147,149
  -1,251,168
  -1,359,415
  -1,471,961
  -1,588,905
  -1,710,379
  -1,836,544
  -1,967,587
Discount rate, %
 
  4.60
  4.83
  5.07
  5.33
  5.59
  5.87
  6.16
  6.47
  6.80
  7.14
  7.49
  7.87
  8.26
  8.67
  9.11
  9.56
  10.04
  10.54
  11.07
  11.62
  12.21
  12.82
  13.46
  14.13
  14.84
  15.58
  16.36
  17.17
  18.03
  18.93
PV of cash for distribution, $m
 
  -11,477
  -17,656
  -24,589
  -32,977
  -42,722
  -53,598
  -65,254
  -77,235
  -89,009
  -100,013
  -109,695
  -117,559
  -123,205
  -126,359
  -126,889
  -124,813
  -120,292
  -113,613
  -105,160
  -95,383
  -84,766
  -73,786
  -62,888
  -52,458
  -42,801
  -34,136
  -26,594
  -20,222
  -14,995
  -10,832
Current shareholders' claim on cash, %
  100
  45.2
  21.1
  10.1
  5.0
  2.6
  1.4
  0.7
  0.4
  0.2
  0.1
  0.1
  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
  0.0
  0.0
  0.0
  0.0

Husky Energy Inc., together with its subsidiaries, operates as an integrated energy company. It operates through two segments, Upstream and Downstream. The Upstream segment engages in the exploration for, and development and production of crude oil, bitumen, natural gas, and natural gas liquids; marketing of the company’s and other producers’ crude oil, natural gas, natural gas liquids, sulphur, and petroleum coke; pipeline transportation and blending of crude oil and natural gas; and storage of crude oil, diluent, and natural gas. This segment’s operations are located primarily in Western Canada, offshore East Coast of Canada, offshore China, offshore Indonesia, and offshore Indonesia. The Downstream segment is involved in upgrading heavy crude oil feedstock into synthetic crude oil; refining crude oil; marketing refined petroleum products, including gasoline, diesel, ethanol blended fuels, asphalt, and ancillary products in Canada; producing ethanol; and refining crude oil to produce and market gasoline, jet fuel, and diesel fuels in the United States. The company also markets its refined petroleum products. Husky Energy Inc. was founded in 1982 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Husky Energy Inc. (HSE)

Valuation Ratios
P/E Ratio 16
Price to Sales 1.1
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 7.5
Price to Free Cash Flow 55.3
Growth Rates
Sales Growth Rate -21.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -43.3%
Cap. Spend. - 3 Yr. Gr. Rate -19.4%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 28.5%
Total Debt to Equity 31.9%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. -0.8%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. -2.2%
Return On Equity 5.4%
Return On Equity - 3 Yr. Avg. -3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 22%
Gross Margin - 3 Yr. Avg. 24.5%
EBITDA Margin 29.1%
EBITDA Margin - 3 Yr. Avg. 25.4%
Operating Margin 10.1%
Oper. Margin - 3 Yr. Avg. -4.4%
Pre-Tax Margin 7.4%
Pre-Tax Margin - 3 Yr. Avg. -6%
Net Profit Margin 7.1%
Net Profit Margin - 3 Yr. Avg. -3.7%
Effective Tax Rate 2.9%
Eff/ Tax Rate - 3 Yr. Avg. 20.3%
Payout Ratio 2.9%

HSE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSE stock intrinsic value calculation we used $12919 million for the last fiscal year's total revenue generated by Husky Energy Inc.. The default revenue input number comes from 2016 income statement of Husky Energy 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 HSE stock valuation model: a) initial revenue growth rate of 60% 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 4.6%, whose default value for HSE is calculated based on our internal credit rating of Husky Energy 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 Husky Energy 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 HSE stock the variable cost ratio is equal to 131.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for HSE 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 5.5% for Husky Energy Inc..

Corporate tax rate of 27% is the nominal tax rate for Husky Energy 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 HSE 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 HSE are equal to 202.1%.

Life of production assets of 10.9 years is the average useful life of capital assets used in Husky Energy 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 HSE is equal to 3.2%. 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 - $17616 million for Husky Energy 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 988.868 million for Husky Energy 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 Husky Energy Inc. at the current share price and the inputted number of shares is $14.5 billion.

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Stock chart of HSE Financial statements of HSE
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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