Intrinsic value of Anadarko Petroleum - APC

Previous Close

$48.26

  Intrinsic Value

$5.45

stock screener

  Rating & Target

str. sell

-89%

Previous close

$48.26

 
Intrinsic value

$5.45

 
Up/down potential

-89%

 
Rating

str. sell

We calculate the intrinsic value of APC 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 27.0

 

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, %
  -10.95
  21.90
  20.21
  18.69
  17.32
  16.09
  14.98
  13.98
  13.08
  12.27
  11.55
  10.89
  10.30
  9.77
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
Revenue, $m
  8,447
  10,297
  12,378
  14,691
  17,236
  20,009
  23,006
  26,222
  29,653
  33,293
  37,137
  41,183
  45,426
  49,865
  54,501
  59,333
  64,364
  69,598
  75,039
  80,695
  86,572
  92,679
  99,027
  105,626
  112,489
  119,630
  127,063
  134,804
  142,869
  151,276
  160,044
Variable operating expenses, $m
 
  19,863
  23,877
  28,339
  33,248
  38,597
  44,378
  50,583
  57,201
  64,222
  71,638
  79,441
  87,626
  96,190
  105,132
  114,453
  124,158
  134,254
  144,751
  155,660
  166,997
  178,778
  191,022
  203,753
  216,992
  230,767
  245,105
  260,037
  275,594
  291,811
  308,725
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
  11,201
  19,863
  23,877
  28,339
  33,248
  38,597
  44,378
  50,583
  57,201
  64,222
  71,638
  79,441
  87,626
  96,190
  105,132
  114,453
  124,158
  134,254
  144,751
  155,660
  166,997
  178,778
  191,022
  203,753
  216,992
  230,767
  245,105
  260,037
  275,594
  291,811
  308,725
Operating income, $m
  -2,754
  -9,566
  -11,499
  -13,648
  -16,012
  -18,588
  -21,372
  -24,361
  -27,548
  -30,929
  -34,501
  -38,259
  -42,201
  -46,325
  -50,631
  -55,120
  -59,794
  -64,656
  -69,711
  -74,965
  -80,425
  -86,099
  -91,996
  -98,127
  -104,503
  -111,137
  -118,042
  -125,233
  -132,725
  -140,535
  -148,681
EBITDA, $m
  1,547
  -4,331
  -5,207
  -6,180
  -7,250
  -8,417
  -9,677
  -11,030
  -12,473
  -14,005
  -15,622
  -17,323
  -19,108
  -20,976
  -22,926
  -24,958
  -27,075
  -29,276
  -31,565
  -33,944
  -36,416
  -38,985
  -41,655
  -44,431
  -47,319
  -50,322
  -53,449
  -56,705
  -60,098
  -63,634
  -67,322
Interest expense (income), $m
  856
  840
  1,245
  1,697
  2,200
  2,753
  3,355
  4,006
  4,705
  5,450
  6,241
  7,076
  7,955
  8,877
  9,841
  10,848
  11,898
  12,991
  14,128
  15,310
  16,538
  17,815
  19,142
  20,521
  21,954
  23,445
  24,996
  26,611
  28,293
  30,045
  31,871
Earnings before tax, $m
  -3,829
  -10,406
  -12,744
  -15,345
  -18,212
  -21,341
  -24,727
  -28,367
  -32,252
  -36,379
  -40,741
  -45,335
  -50,155
  -55,201
  -60,472
  -65,968
  -71,692
  -77,647
  -83,839
  -90,275
  -96,963
  -103,914
  -111,137
  -118,647
  -126,457
  -134,582
  -143,038
  -151,844
  -161,018
  -170,580
  -180,552
Tax expense, $m
  -1,021
  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
  -3,071
  -10,406
  -12,744
  -15,345
  -18,212
  -21,341
  -24,727
  -28,367
  -32,252
  -36,379
  -40,741
  -45,335
  -50,155
  -55,201
  -60,472
  -65,968
  -71,692
  -77,647
  -83,839
  -90,275
  -96,963
  -103,914
  -111,137
  -118,647
  -126,457
  -134,582
  -143,038
  -151,844
  -161,018
  -170,580
  -180,552

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,184
  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
  45,564
  51,743
  62,200
  73,825
  86,612
  100,546
  115,607
  131,770
  149,010
  167,301
  186,620
  206,948
  228,270
  250,579
  273,873
  298,155
  323,437
  349,738
  377,082
  405,501
  435,033
  465,723
  497,621
  530,784
  565,274
  601,158
  638,509
  677,406
  717,934
  760,180
  804,240
Adjusted assets (=assets-cash), $m
  42,380
  51,743
  62,200
  73,825
  86,612
  100,546
  115,607
  131,770
  149,010
  167,301
  186,620
  206,948
  228,270
  250,579
  273,873
  298,155
  323,437
  349,738
  377,082
  405,501
  435,033
  465,723
  497,621
  530,784
  565,274
  601,158
  638,509
  677,406
  717,934
  760,180
  804,240
Revenue / Adjusted assets
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
  0.199
Average production assets, $m
  39,077
  47,633
  57,260
  67,961
  79,732
  92,560
  106,425
  121,304
  137,175
  154,013
  171,797
  190,511
  210,140
  230,677
  252,120
  274,474
  297,748
  321,959
  347,132
  373,293
  400,480
  428,733
  458,097
  488,626
  520,376
  553,410
  587,795
  623,603
  660,911
  699,802
  740,363
Working capital, $m
  1,938
  -1,472
  -1,770
  -2,101
  -2,465
  -2,861
  -3,290
  -3,750
  -4,240
  -4,761
  -5,311
  -5,889
  -6,496
  -7,131
  -7,794
  -8,485
  -9,204
  -9,952
  -10,731
  -11,539
  -12,380
  -13,253
  -14,161
  -15,105
  -16,086
  -17,107
  -18,170
  -19,277
  -20,430
  -21,632
  -22,886
Total debt, $m
  15,323
  22,641
  30,861
  39,998
  50,048
  61,000
  72,838
  85,542
  99,093
  113,470
  128,654
  144,632
  161,392
  178,926
  197,235
  216,321
  236,192
  256,865
  278,357
  300,695
  323,907
  348,029
  373,101
  399,167
  426,276
  454,481
  483,839
  514,412
  546,267
  579,473
  614,104
Total liabilities, $m
  33,352
  40,670
  48,890
  58,027
  68,077
  79,029
  90,867
  103,571
  117,122
  131,499
  146,683
  162,661
  179,421
  196,955
  215,264
  234,350
  254,221
  274,894
  296,386
  318,724
  341,936
  366,058
  391,130
  417,196
  444,305
  472,510
  501,868
  532,441
  564,296
  597,502
  632,133
Total equity, $m
  12,212
  11,073
  13,311
  15,799
  18,535
  21,517
  24,740
  28,199
  31,888
  35,802
  39,937
  44,287
  48,850
  53,624
  58,609
  63,805
  69,216
  74,844
  80,695
  86,777
  93,097
  99,665
  106,491
  113,588
  120,969
  128,648
  136,641
  144,965
  153,638
  162,679
  172,107
Total liabilities and equity, $m
  45,564
  51,743
  62,201
  73,826
  86,612
  100,546
  115,607
  131,770
  149,010
  167,301
  186,620
  206,948
  228,271
  250,579
  273,873
  298,155
  323,437
  349,738
  377,081
  405,501
  435,033
  465,723
  497,621
  530,784
  565,274
  601,158
  638,509
  677,406
  717,934
  760,181
  804,240
Debt-to-equity ratio
  1.255
  2.040
  2.320
  2.530
  2.700
  2.830
  2.940
  3.030
  3.110
  3.170
  3.220
  3.270
  3.300
  3.340
  3.370
  3.390
  3.410
  3.430
  3.450
  3.470
  3.480
  3.490
  3.500
  3.510
  3.520
  3.530
  3.540
  3.550
  3.560
  3.560
  3.570
Adjusted equity ratio
  0.213
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214
  0.214

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3,071
  -10,406
  -12,744
  -15,345
  -18,212
  -21,341
  -24,727
  -28,367
  -32,252
  -36,379
  -40,741
  -45,335
  -50,155
  -55,201
  -60,472
  -65,968
  -71,692
  -77,647
  -83,839
  -90,275
  -96,963
  -103,914
  -111,137
  -118,647
  -126,457
  -134,582
  -143,038
  -151,844
  -161,018
  -170,580
  -180,552
Depreciation, amort., depletion, $m
  4,301
  5,234
  6,292
  7,468
  8,762
  10,171
  11,695
  13,330
  15,074
  16,924
  18,879
  20,935
  23,092
  25,349
  27,706
  30,162
  32,720
  35,380
  38,146
  41,021
  44,009
  47,113
  50,340
  53,695
  57,184
  60,814
  64,593
  68,528
  72,628
  76,901
  81,359
Funds from operations, $m
  3,092
  -5,172
  -6,452
  -7,877
  -9,450
  -11,169
  -13,032
  -15,036
  -17,178
  -19,455
  -21,863
  -24,399
  -27,063
  -29,852
  -32,767
  -35,806
  -38,972
  -42,267
  -45,693
  -49,254
  -52,954
  -56,800
  -60,797
  -64,952
  -69,273
  -73,767
  -78,445
  -83,316
  -88,390
  -93,679
  -99,193
Change in working capital, $m
  92
  -265
  -298
  -331
  -364
  -397
  -429
  -460
  -491
  -521
  -550
  -578
  -607
  -635
  -663
  -691
  -719
  -748
  -778
  -809
  -840
  -873
  -908
  -944
  -981
  -1,021
  -1,063
  -1,107
  -1,153
  -1,202
  -1,254
Cash from operations, $m
  3,000
  -4,907
  -6,154
  -7,546
  -9,086
  -10,773
  -12,604
  -14,576
  -16,688
  -18,934
  -21,313
  -23,821
  -26,456
  -29,217
  -32,104
  -35,115
  -38,253
  -41,518
  -44,915
  -48,445
  -52,114
  -55,927
  -59,889
  -64,008
  -68,291
  -72,746
  -77,382
  -82,209
  -87,237
  -92,476
  -97,939
Maintenance CAPEX, $m
  0
  -4,294
  -5,234
  -6,292
  -7,468
  -8,762
  -10,171
  -11,695
  -13,330
  -15,074
  -16,924
  -18,879
  -20,935
  -23,092
  -25,349
  -27,706
  -30,162
  -32,720
  -35,380
  -38,146
  -41,021
  -44,009
  -47,113
  -50,340
  -53,695
  -57,184
  -60,814
  -64,593
  -68,528
  -72,628
  -76,901
New CAPEX, $m
  -3,505
  -8,556
  -9,627
  -10,701
  -11,771
  -12,827
  -13,865
  -14,880
  -15,871
  -16,838
  -17,784
  -18,713
  -19,629
  -20,537
  -21,443
  -22,353
  -23,274
  -24,212
  -25,172
  -26,162
  -27,187
  -28,252
  -29,365
  -30,529
  -31,750
  -33,034
  -34,385
  -35,808
  -37,308
  -38,891
  -40,561
Cash from investing activities, $m
  -2,762
  -12,850
  -14,861
  -16,993
  -19,239
  -21,589
  -24,036
  -26,575
  -29,201
  -31,912
  -34,708
  -37,592
  -40,564
  -43,629
  -46,792
  -50,059
  -53,436
  -56,932
  -60,552
  -64,308
  -68,208
  -72,261
  -76,478
  -80,869
  -85,445
  -90,218
  -95,199
  -100,401
  -105,836
  -111,519
  -117,462
Free cash flow, $m
  238
  -17,758
  -21,016
  -24,540
  -28,325
  -32,362
  -36,640
  -41,151
  -45,888
  -50,846
  -56,022
  -61,413
  -67,021
  -72,847
  -78,896
  -85,174
  -91,689
  -98,450
  -105,467
  -112,753
  -120,322
  -128,188
  -136,367
  -144,877
  -153,737
  -162,964
  -172,582
  -182,610
  -193,073
  -203,995
  -215,401
Issuance/(repayment) of debt, $m
  -790
  7,360
  8,219
  9,137
  10,050
  10,952
  11,838
  12,704
  13,550
  14,377
  15,185
  15,978
  16,760
  17,535
  18,308
  19,086
  19,872
  20,672
  21,492
  22,337
  23,212
  24,122
  25,072
  26,066
  27,109
  28,205
  29,358
  30,573
  31,855
  33,206
  34,631
Issuance/(repurchase) of shares, $m
  2,150
  12,409
  14,982
  17,833
  20,948
  24,323
  27,950
  31,826
  35,942
  40,293
  44,876
  49,685
  54,718
  59,976
  65,457
  71,164
  77,102
  83,275
  89,691
  96,357
  103,283
  110,481
  117,964
  125,744
  133,838
  142,261
  151,031
  160,168
  169,691
  179,621
  189,981
Cash from financing (excl. dividends), $m  
  2,113
  19,769
  23,201
  26,970
  30,998
  35,275
  39,788
  44,530
  49,492
  54,670
  60,061
  65,663
  71,478
  77,511
  83,765
  90,250
  96,974
  103,947
  111,183
  118,694
  126,495
  134,603
  143,036
  151,810
  160,947
  170,466
  180,389
  190,741
  201,546
  212,827
  224,612
Total cash flow (excl. dividends), $m
  2,350
  2,012
  2,186
  2,430
  2,673
  2,913
  3,148
  3,379
  3,604
  3,824
  4,039
  4,249
  4,457
  4,664
  4,869
  5,076
  5,285
  5,498
  5,716
  5,941
  6,174
  6,416
  6,668
  6,933
  7,210
  7,501
  7,808
  8,131
  8,472
  8,831
  9,211
Retained Cash Flow (-), $m
  607
  -12,409
  -14,982
  -17,833
  -20,948
  -24,323
  -27,950
  -31,826
  -35,942
  -40,293
  -44,876
  -49,685
  -54,718
  -59,976
  -65,457
  -71,164
  -77,102
  -83,275
  -89,691
  -96,357
  -103,283
  -110,481
  -117,964
  -125,744
  -133,838
  -142,261
  -151,031
  -160,168
  -169,691
  -179,621
  -189,981
Prev. year cash balance distribution, $m
 
  3,142
  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
 
  -7,256
  -12,796
  -15,403
  -18,275
  -21,410
  -24,802
  -28,447
  -32,338
  -36,470
  -40,837
  -45,435
  -50,261
  -55,312
  -60,587
  -66,088
  -71,817
  -77,777
  -83,975
  -90,416
  -97,110
  -104,066
  -111,295
  -118,811
  -126,628
  -134,760
  -143,223
  -152,037
  -161,219
  -170,789
  -180,770
Discount rate, %
 
  7.20
  7.56
  7.94
  8.33
  8.75
  9.19
  9.65
  10.13
  10.64
  11.17
  11.73
  12.31
  12.93
  13.58
  14.26
  14.97
  15.72
  16.50
  17.33
  18.19
  19.10
  20.06
  21.06
  22.11
  23.22
  24.38
  25.60
  26.88
  28.22
  29.64
PV of cash for distribution, $m
 
  -6,768
  -11,061
  -12,249
  -13,267
  -14,074
  -14,636
  -14,928
  -14,943
  -14,683
  -14,164
  -13,416
  -12,474
  -11,384
  -10,194
  -8,953
  -7,709
  -6,503
  -5,372
  -4,341
  -3,430
  -2,648
  -1,994
  -1,464
  -1,047
  -729
  -492
  -323
  -205
  -126
  -75
Current shareholders' claim on cash, %
  100
  61.8
  38.4
  23.9
  14.9
  9.4
  5.9
  3.7
  2.4
  1.5
  1.0
  0.6
  0.4
  0.3
  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

Anadarko Petroleum Corporation (Anadarko) is an independent exploration and production company. The Company is engaged in developing, acquiring, and exploring for oil and natural-gas resources. The Company's segments include Oil and Gas Exploration and Production; Midstream, and Marketing. The Company's geographical segments include the United States and International. The Oil and Gas Exploration and Production segment explores for and produces oil, condensate, natural gas and natural gas liquids (NGLs), and focuses on the development and operation of the Company's liquefied natural gas (LNG) project in Mozambique. The Midstream segment engages in gathering, processing, treating and transporting Anadarko and third-party oil, natural-gas and NGLs production. The Marketing segment sells Anadarko's oil, natural-gas and NGLs production, as well as third-party purchased volumes. As of December 31, 2016, the Company had approximately 1.7 billion barrels of oil equivalent (BOE).

FINANCIAL RATIOS  of  Anadarko Petroleum (APC)

Valuation Ratios
P/E Ratio -8.7
Price to Sales 3.1
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 8.9
Price to Free Cash Flow -52.7
Growth Rates
Sales Growth Rate -11%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -42.2%
Cap. Spend. - 3 Yr. Gr. Rate -14.6%
Financial Strength
Quick Ratio 76
Current Ratio 0
LT Debt to Equity 125.1%
Total Debt to Equity 125.5%
Interest Coverage -3
Management Effectiveness
Return On Assets -5.3%
Ret/ On Assets - 3 Yr. Avg. -17.4%
Return On Total Capital -11%
Ret/ On T. Cap. - 3 Yr. Avg. -12.4%
Return On Equity -24.5%
Return On Equity - 3 Yr. Avg. -24.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 78.5%
Gross Margin - 3 Yr. Avg. 80.6%
EBITDA Margin 15.7%
EBITDA Margin - 3 Yr. Avg. 5.2%
Operating Margin -32.6%
Oper. Margin - 3 Yr. Avg. -30.8%
Pre-Tax Margin -45.3%
Pre-Tax Margin - 3 Yr. Avg. -49%
Net Profit Margin -36.4%
Net Profit Margin - 3 Yr. Avg. -39.2%
Effective Tax Rate 26.7%
Eff/ Tax Rate - 3 Yr. Avg. 1016.9%
Payout Ratio -3.4%

APC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the APC stock intrinsic value calculation we used $8447 million for the last fiscal year's total revenue generated by Anadarko Petroleum. The default revenue input number comes from 2016 income statement of Anadarko Petroleum. 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 APC stock valuation model: a) initial revenue growth rate of 21.9% 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 7.2%, whose default value for APC is calculated based on our internal credit rating of Anadarko Petroleum, 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 Anadarko Petroleum.
    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 APC stock the variable cost ratio is equal to 192.9%.

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 APC 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 Anadarko Petroleum.

Corporate tax rate of 27% is the nominal tax rate for Anadarko Petroleum. 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 APC 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 APC are equal to 462.6%.

Life of production assets of 9.1 years is the average useful life of capital assets used in Anadarko Petroleum 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 APC is equal to -14.3%. 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 - $12212 million for Anadarko Petroleum - 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 560.294 million for Anadarko Petroleum 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 Anadarko Petroleum at the current share price and the inputted number of shares is $27.0 billion.

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COMPANY NEWS

▶ Forecasting Anadarko Petroleums Stock Price   [Dec-12-17 03:05PM  Market Realist]
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▶ Anadarko Petroleum Stock and Wall Street Analysts Sentiment   [Nov-28-17 10:31AM  Market Realist]
▶ How Anadarko Petroleums Production Mix Has Evolved   [Nov-27-17 10:31AM  Market Realist]
▶ How Anadarko Petroleum Divides Its Portfolio of Assets   [Nov-24-17 04:00PM  Market Realist]
▶ Anadarko Petroleums Capex Plans for 2018   [12:56PM  Market Realist]
▶ Anadarko trims spending for 2018   [Nov-16-17 03:10PM  American City Business Journals]
▶ Anadarko Declares Dividend   [Nov-15-17 05:40PM  PR Newswire]
▶ This Oil Giant Is Putting Investors First   [Nov-11-17 10:50AM  Motley Fool]
▶ Anadarko to build regional office in new Midland mixed-use development   [11:16AM  American City Business Journals]
▶ Apache Had Upbeat 3Q17 Earnings and Revenue   [10:39AM  Market Realist]
▶ Anadarko agrees to $350 million divestment, posts loss   [Nov-01-17 04:15PM  American City Business Journals]
▶ Anadarko Petroleum reports 3Q loss   [04:21PM  Associated Press]
▶ Anadarko veteran named CEO at Denver's Whiting Petroleum   [11:24AM  American City Business Journals]
▶ Here's What To Look For In Shale Earnings; 'Apple Of Oil' In Buy Zone   [Oct-30-17 04:11PM  Investor's Business Daily]
▶ This Could Be a Game-Changer for Oil Stocks   [Oct-29-17 12:19PM  Motley Fool]
▶ MercBloc's Dicker on Energy Sector Earnings   [09:26AM  Bloomberg Video]
▶ Western Gas Could Outperform Peers In 2018   [Oct-26-17 09:37AM  Benzinga]
▶ Whiting Petroleum names Bradley Holly as CEO   [Oct-24-17 05:03PM  Reuters]
▶ Dont Look Now but the Oil Market is Turning Bullish   [Oct-21-17 09:49AM  Motley Fool]
▶ Short Interest Trends in Anadarko Petroleum Stock   [Oct-20-17 09:11AM  Market Realist]
▶ What to Expect from Concho Resources in 3Q17   [07:45AM  Market Realist]
▶ How Will 3Q17 Earnings Impact Anadarko Petroleum Stock?   [Oct-19-17 03:05PM  Market Realist]
▶ Anadarko Petroleums Production Trends in 2017   [01:35PM  Market Realist]
Financial statements of APC
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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