Intrinsic value of Chesapeake Energy - CHK

Previous Close

$4.84

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

  Value-price divergence*

-123%

Previous close

$4.84

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

 
Value-price divergence*

-123%

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

We calculate the intrinsic value of CHK 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 4.2

 

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, %
  -38.33
  41.00
  37.40
  34.16
  31.24
  28.62
  26.26
  24.13
  22.22
  20.50
  18.95
  17.55
  16.30
  15.17
  14.15
  13.24
  12.41
  11.67
  11.00
  10.40
  9.86
  9.38
  8.94
  8.55
  8.19
  7.87
  7.58
  7.33
  7.09
  6.88
  6.70
Revenue, $m
  7,872
  11,100
  15,251
  20,460
  26,853
  34,538
  43,607
  54,130
  66,158
  79,718
  94,822
  111,465
  129,631
  149,293
  170,419
  192,975
  216,927
  242,245
  268,901
  296,875
  326,156
  356,739
  388,629
  421,838
  456,389
  492,314
  529,653
  568,456
  608,778
  650,687
  694,255
Variable operating expenses, $m
 
  27,360
  37,593
  50,435
  66,193
  85,137
  107,492
  133,432
  163,078
  196,504
  233,736
  274,762
  319,541
  368,007
  420,083
  475,683
  534,726
  597,133
  662,840
  731,798
  803,976
  879,363
  957,970
  1,039,830
  1,124,999
  1,213,554
  1,305,595
  1,401,243
  1,500,639
  1,603,943
  1,711,338
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
  12,166
  27,360
  37,593
  50,435
  66,193
  85,137
  107,492
  133,432
  163,078
  196,504
  233,736
  274,762
  319,541
  368,007
  420,083
  475,683
  534,726
  597,133
  662,840
  731,798
  803,976
  879,363
  957,970
  1,039,830
  1,124,999
  1,213,554
  1,305,595
  1,401,243
  1,500,639
  1,603,943
  1,711,338
Operating income, $m
  -4,294
  -16,261
  -22,342
  -29,974
  -39,340
  -50,599
  -63,885
  -79,301
  -96,921
  -116,786
  -138,914
  -163,297
  -189,910
  -218,714
  -249,664
  -282,708
  -317,798
  -354,888
  -393,939
  -434,923
  -477,819
  -522,623
  -569,341
  -617,992
  -668,610
  -721,240
  -775,942
  -832,787
  -891,860
  -953,256
  -1,017,083
EBITDA, $m
  -3,187
  -14,701
  -20,199
  -27,099
  -35,566
  -45,745
  -57,756
  -71,694
  -87,623
  -105,583
  -125,588
  -147,632
  -171,692
  -197,733
  -225,714
  -255,589
  -287,312
  -320,844
  -356,149
  -393,201
  -431,983
  -472,489
  -514,725
  -558,709
  -604,471
  -652,052
  -701,507
  -752,899
  -806,305
  -861,812
  -919,515
Interest expense (income), $m
  344
  365
  437
  654
  925
  1,259
  1,660
  2,133
  2,681
  3,309
  4,016
  4,804
  5,672
  6,619
  7,644
  8,746
  9,922
  11,172
  12,492
  13,882
  15,341
  16,868
  18,463
  20,126
  21,858
  23,660
  25,534
  27,481
  29,505
  31,608
  33,793
Earnings before tax, $m
  -4,589
  -16,626
  -22,780
  -30,628
  -40,265
  -51,857
  -65,544
  -81,434
  -99,602
  -120,095
  -142,930
  -168,100
  -195,581
  -225,333
  -257,308
  -291,455
  -327,721
  -366,060
  -406,431
  -448,805
  -493,160
  -539,491
  -587,804
  -638,118
  -690,468
  -744,900
  -801,476
  -860,268
  -921,365
  -984,864
  -1,050,876
Tax expense, $m
  -190
  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
  -4,401
  -16,626
  -22,780
  -30,628
  -40,265
  -51,857
  -65,544
  -81,434
  -99,602
  -120,095
  -142,930
  -168,100
  -195,581
  -225,333
  -257,308
  -291,455
  -327,721
  -366,060
  -406,431
  -448,805
  -493,160
  -539,491
  -587,804
  -638,118
  -690,468
  -744,900
  -801,476
  -860,268
  -921,365
  -984,864
  -1,050,876

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  882
  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
  13,028
  18,377
  25,250
  33,875
  44,459
  57,183
  72,197
  89,620
  109,532
  131,983
  156,990
  184,545
  214,621
  247,174
  282,151
  319,495
  359,151
  401,067
  445,200
  491,516
  539,994
  590,628
  643,425
  698,407
  755,611
  815,089
  876,909
  941,152
  1,007,911
  1,077,296
  1,149,428
Adjusted assets (=assets-cash), $m
  12,146
  18,377
  25,250
  33,875
  44,459
  57,183
  72,197
  89,620
  109,532
  131,983
  156,990
  184,545
  214,621
  247,174
  282,151
  319,495
  359,151
  401,067
  445,200
  491,516
  539,994
  590,628
  643,425
  698,407
  755,611
  815,089
  876,909
  941,152
  1,007,911
  1,077,296
  1,149,428
Revenue / Adjusted assets
  0.648
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
  0.604
Average production assets, $m
  12,392
  17,471
  24,005
  32,205
  42,267
  54,363
  68,638
  85,201
  104,132
  125,476
  149,250
  175,447
  204,040
  234,987
  268,239
  303,743
  341,444
  381,293
  423,250
  467,282
  513,370
  561,508
  611,701
  663,972
  718,356
  774,902
  833,674
  894,749
  958,217
  1,024,181
  1,092,757
Working capital, $m
  -1,506
  -1,110
  -1,525
  -2,046
  -2,685
  -3,454
  -4,361
  -5,413
  -6,616
  -7,972
  -9,482
  -11,147
  -12,963
  -14,929
  -17,042
  -19,298
  -21,693
  -24,224
  -26,890
  -29,688
  -32,616
  -35,674
  -38,863
  -42,184
  -45,639
  -49,231
  -52,965
  -56,846
  -60,878
  -65,069
  -69,425
Total debt, $m
  10,441
  12,492
  18,678
  26,440
  35,966
  47,417
  60,931
  76,611
  94,532
  114,738
  137,244
  162,044
  189,112
  218,409
  249,889
  283,499
  319,189
  356,913
  396,633
  438,317
  481,948
  527,518
  575,035
  624,519
  676,003
  729,533
  785,171
  842,989
  903,073
  965,520
  1,030,438
Total liabilities, $m
  14,488
  16,539
  22,725
  30,487
  40,013
  51,464
  64,978
  80,658
  98,579
  118,785
  141,291
  166,091
  193,159
  222,456
  253,936
  287,546
  323,236
  360,960
  400,680
  442,364
  485,995
  531,565
  579,082
  628,566
  680,050
  733,580
  789,218
  847,036
  907,120
  969,567
  1,034,485
Total equity, $m
  -1,460
  1,838
  2,525
  3,387
  4,446
  5,718
  7,220
  8,962
  10,953
  13,198
  15,699
  18,455
  21,462
  24,717
  28,215
  31,950
  35,915
  40,107
  44,520
  49,152
  53,999
  59,063
  64,342
  69,841
  75,561
  81,509
  87,691
  94,115
  100,791
  107,730
  114,943
Total liabilities and equity, $m
  13,028
  18,377
  25,250
  33,874
  44,459
  57,182
  72,198
  89,620
  109,532
  131,983
  156,990
  184,546
  214,621
  247,173
  282,151
  319,496
  359,151
  401,067
  445,200
  491,516
  539,994
  590,628
  643,424
  698,407
  755,611
  815,089
  876,909
  941,151
  1,007,911
  1,077,297
  1,149,428
Debt-to-equity ratio
  -7.151
  6.800
  7.400
  7.810
  8.090
  8.290
  8.440
  8.550
  8.630
  8.690
  8.740
  8.780
  8.810
  8.840
  8.860
  8.870
  8.890
  8.900
  8.910
  8.920
  8.930
  8.930
  8.940
  8.940
  8.950
  8.950
  8.950
  8.960
  8.960
  8.960
  8.960
Adjusted equity ratio
  -0.193
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -4,401
  -16,626
  -22,780
  -30,628
  -40,265
  -51,857
  -65,544
  -81,434
  -99,602
  -120,095
  -142,930
  -168,100
  -195,581
  -225,333
  -257,308
  -291,455
  -327,721
  -366,060
  -406,431
  -448,805
  -493,160
  -539,491
  -587,804
  -638,118
  -690,468
  -744,900
  -801,476
  -860,268
  -921,365
  -984,864
  -1,050,876
Depreciation, amort., depletion, $m
  1,107
  1,560
  2,143
  2,875
  3,774
  4,854
  6,128
  7,607
  9,297
  11,203
  13,326
  15,665
  18,218
  20,981
  23,950
  27,120
  30,486
  34,044
  37,790
  41,722
  45,837
  50,135
  54,616
  59,283
  64,139
  69,188
  74,435
  79,888
  85,555
  91,445
  97,568
Funds from operations, $m
  -936
  -15,066
  -20,636
  -27,753
  -36,491
  -47,004
  -59,416
  -73,826
  -90,305
  -108,892
  -129,604
  -152,436
  -177,363
  -204,352
  -233,358
  -264,335
  -297,235
  -332,016
  -368,641
  -407,083
  -447,324
  -489,357
  -533,188
  -578,835
  -626,329
  -675,712
  -727,040
  -780,380
  -835,810
  -893,419
  -953,309
Change in working capital, $m
  -732
  -323
  -415
  -521
  -639
  -769
  -907
  -1,052
  -1,203
  -1,356
  -1,510
  -1,664
  -1,817
  -1,966
  -2,113
  -2,256
  -2,395
  -2,532
  -2,666
  -2,797
  -2,928
  -3,058
  -3,189
  -3,321
  -3,455
  -3,593
  -3,734
  -3,880
  -4,032
  -4,191
  -4,357
Cash from operations, $m
  -204
  -14,744
  -20,221
  -27,232
  -35,852
  -46,235
  -58,509
  -72,774
  -89,102
  -107,536
  -128,094
  -150,771
  -175,547
  -202,386
  -231,246
  -262,079
  -294,840
  -329,484
  -365,976
  -404,286
  -444,396
  -486,298
  -529,999
  -575,514
  -622,874
  -672,120
  -723,307
  -776,500
  -831,778
  -889,228
  -948,952
Maintenance CAPEX, $m
  0
  -1,106
  -1,560
  -2,143
  -2,875
  -3,774
  -4,854
  -6,128
  -7,607
  -9,297
  -11,203
  -13,326
  -15,665
  -18,218
  -20,981
  -23,950
  -27,120
  -30,486
  -34,044
  -37,790
  -41,722
  -45,837
  -50,135
  -54,616
  -59,283
  -64,139
  -69,188
  -74,435
  -79,888
  -85,555
  -91,445
New CAPEX, $m
  -2,120
  -5,079
  -6,534
  -8,200
  -10,062
  -12,097
  -14,275
  -16,564
  -18,931
  -21,344
  -23,774
  -26,197
  -28,593
  -30,948
  -33,252
  -35,503
  -37,701
  -39,849
  -41,957
  -44,032
  -46,088
  -48,138
  -50,194
  -52,271
  -54,384
  -56,546
  -58,772
  -61,075
  -63,468
  -65,964
  -68,576
Cash from investing activities, $m
  -660
  -6,185
  -8,094
  -10,343
  -12,937
  -15,871
  -19,129
  -22,692
  -26,538
  -30,641
  -34,977
  -39,523
  -44,258
  -49,166
  -54,233
  -59,453
  -64,821
  -70,335
  -76,001
  -81,822
  -87,810
  -93,975
  -100,329
  -106,887
  -113,667
  -120,685
  -127,960
  -135,510
  -143,356
  -151,519
  -160,021
Free cash flow, $m
  -864
  -20,929
  -28,315
  -37,575
  -48,789
  -62,105
  -77,637
  -95,466
  -115,640
  -138,177
  -163,071
  -190,294
  -219,805
  -251,551
  -285,479
  -321,532
  -359,660
  -399,820
  -441,976
  -486,108
  -532,206
  -580,273
  -630,327
  -682,401
  -736,541
  -792,805
  -851,266
  -912,010
  -975,134
  -1,040,748
  -1,108,972
Issuance/(repayment) of debt, $m
  952
  2,051
  6,186
  7,763
  9,525
  11,452
  13,513
  15,680
  17,921
  20,206
  22,506
  24,800
  27,068
  29,297
  31,479
  33,610
  35,690
  37,724
  39,719
  41,684
  43,631
  45,571
  47,517
  49,484
  51,484
  53,531
  55,638
  57,818
  60,084
  62,447
  64,919
Issuance/(repurchase) of shares, $m
  0
  19,924
  23,467
  31,491
  41,323
  53,130
  67,046
  83,176
  101,593
  122,340
  145,431
  170,856
  198,589
  228,588
  260,806
  295,189
  331,686
  370,252
  410,845
  453,436
  498,008
  544,555
  593,084
  643,617
  696,188
  750,848
  807,658
  866,693
  928,041
  991,802
  1,058,089
Cash from financing (excl. dividends), $m  
  921
  21,975
  29,653
  39,254
  50,848
  64,582
  80,559
  98,856
  119,514
  142,546
  167,937
  195,656
  225,657
  257,885
  292,285
  328,799
  367,376
  407,976
  450,564
  495,120
  541,639
  590,126
  640,601
  693,101
  747,672
  804,379
  863,296
  924,511
  988,125
  1,054,249
  1,123,008
Total cash flow (excl. dividends), $m
  57
  1,046
  1,337
  1,678
  2,059
  2,476
  2,922
  3,390
  3,875
  4,369
  4,866
  5,362
  5,852
  6,334
  6,806
  7,267
  7,717
  8,156
  8,588
  9,013
  9,433
  9,853
  10,274
  10,699
  11,131
  11,574
  12,029
  12,501
  12,991
  13,501
  14,036
Retained Cash Flow (-), $m
  3,598
  -19,924
  -23,467
  -31,491
  -41,323
  -53,130
  -67,046
  -83,176
  -101,593
  -122,340
  -145,431
  -170,856
  -198,589
  -228,588
  -260,806
  -295,189
  -331,686
  -370,252
  -410,845
  -453,436
  -498,008
  -544,555
  -593,084
  -643,617
  -696,188
  -750,848
  -807,658
  -866,693
  -928,041
  -991,802
  -1,058,089
Prev. year cash balance distribution, $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 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
 
  -18,878
  -22,129
  -29,812
  -39,264
  -50,654
  -64,124
  -79,786
  -97,719
  -117,972
  -140,565
  -165,494
  -192,736
  -222,254
  -254,000
  -287,922
  -323,970
  -362,095
  -402,257
  -444,424
  -488,575
  -534,702
  -582,810
  -632,918
  -685,057
  -739,274
  -795,628
  -854,192
  -915,050
  -978,301
  -1,044,053
Discount rate, %
 
  15.30
  16.07
  16.87
  17.71
  18.60
  19.53
  20.50
  21.53
  22.61
  23.74
  24.92
  26.17
  27.48
  28.85
  30.29
  31.81
  33.40
  35.07
  36.82
  38.66
  40.60
  42.63
  44.76
  46.99
  49.34
  51.81
  54.40
  57.12
  59.98
  62.98
PV of cash for distribution, $m
 
  -16,373
  -16,427
  -18,677
  -20,451
  -21,589
  -21,990
  -21,624
  -20,538
  -18,845
  -16,709
  -14,314
  -11,846
  -9,468
  -7,305
  -5,438
  -3,904
  -2,700
  -1,797
  -1,150
  -708
  -418
  -236
  -128
  -66
  -33
  -15
  -7
  -3
  -1
  0
Current shareholders' claim on cash, %
  100
  50.0
  3.6
  0.3
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Chesapeake Energy Corporation engages in the acquisition, exploration, and development of properties for the production of oil, natural gas, and natural gas liquids (NGL) from underground reservoirs in the United States. It operates in two segments, Exploration and Production; and Marketing, Gathering, and Compression. The company holds interests in natural gas resource plays, including the Haynesville/Bossier Shales in northwestern Louisiana and East Texas; the Marcellus Shale in the northern Appalachian Basin in Pennsylvania; and the Barnett Shale in the Fort Worth Basin of north-central Texas. It also holds interests in liquids-rich resource plays, such as the Eagle Ford Shale in South Texas; the Utica Shale in Ohio and Pennsylvania; the Anadarko Basin in northwestern Oklahoma and the Texas Panhandle; and the Niobrara Shale in the Powder River Basin in Wyoming. The company owns interests in approximately 32,400 oil and natural gas wells. As of December 31, 2015, it had estimated proved reserves of 1.504 billion barrels of oil equivalent. The company also provides oil, natural gas, and NGL marketing services comprising commodity price structuring, securing and negotiating gathering, hauling, processing and transportation, contract administration, and nomination services for Chesapeake-operated wells; and marketing services for third-party producers, as well as designs, engineers, fabricates, installs, and sells natural gas compression units, accessories, and equipment used in the production, treatment, and processing of oil and natural gas. Chesapeake Energy Corporation was founded in 1989 and is headquartered in Oklahoma City, Oklahoma.

FINANCIAL RATIOS  of  Chesapeake Energy (CHK)

Valuation Ratios
P/E Ratio -1
Price to Sales 0.6
Price to Book -3
Price to Tangible Book
Price to Cash Flow -21.2
Price to Free Cash Flow -1.9
Growth Rates
Sales Growth Rate -38.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -43.8%
Cap. Spend. - 3 Yr. Gr. Rate -22.6%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity -680.7%
Total Debt to Equity -715.1%
Interest Coverage -12
Management Effectiveness
Return On Assets -26.8%
Ret/ On Assets - 3 Yr. Avg. -24%
Return On Total Capital -40.4%
Ret/ On T. Cap. - 3 Yr. Avg. -34.9%
Return On Equity -1298.2%
Return On Equity - 3 Yr. Avg. -480.3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 66.5%
Gross Margin - 3 Yr. Avg. 74.4%
EBITDA Margin -39.9%
EBITDA Margin - 3 Yr. Avg. -47.8%
Operating Margin -54.5%
Oper. Margin - 3 Yr. Avg. -62.3%
Pre-Tax Margin -58.3%
Pre-Tax Margin - 3 Yr. Avg. -64.7%
Net Profit Margin -55.9%
Net Profit Margin - 3 Yr. Avg. -54.2%
Effective Tax Rate 4.1%
Eff/ Tax Rate - 3 Yr. Avg. 21.1%
Payout Ratio 0%

CHK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHK stock intrinsic value calculation we used $7872 million for the last fiscal year's total revenue generated by Chesapeake Energy. The default revenue input number comes from 2016 income statement of Chesapeake Energy. 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 CHK stock valuation model: a) initial revenue growth rate of 41% 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 15.3%, whose default value for CHK is calculated based on our internal credit rating of Chesapeake Energy, 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 Chesapeake Energy.
    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 CHK stock the variable cost ratio is equal to 246.5%.

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 CHK 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 3.5% for Chesapeake Energy.

Corporate tax rate of 27% is the nominal tax rate for Chesapeake Energy. 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 CHK 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 CHK are equal to 157.4%.

Life of production assets of 11.2 years is the average useful life of capital assets used in Chesapeake Energy 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 CHK is equal to -10%. 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 - $-1460 million for Chesapeake Energy - 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 859.964 million for Chesapeake Energy 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 Chesapeake Energy at the current share price and the inputted number of shares is $4.2 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ How Will 2Q17 Turn Out for Chesapeake Energy?   [Jul-20-17 04:38PM  Market Realist]
▶ Cabot Oil & Gass Production Expectations for 2017   [Jul-19-17 10:35AM  Market Realist]
▶ What Can We Infer from Chesapeakes Implied Volatility?   [Jul-18-17 06:05PM  Market Realist]
▶ Energy Commodities Impact Gas-Weighted Stocks   [03:05PM  Market Realist]
▶ Is The Market Already Trading On The Trump Fed?   [Jul-12-17 09:44PM  Forbes]
▶ The Rise in Natural Gas: Which Energy Stocks Might Match It?   [Jul-11-17 05:06PM  Market Realist]
▶ Forecast for Chesapeake Energy Stock   [Jul-10-17 04:35PM  Market Realist]
▶ The Shale Gas Revolution Is A Media Myth   [Jul-05-17 07:00PM  Oilprice.com]
▶ What Analysts Recommended for Energy Stocks Last Week   [Jul-03-17 05:05PM  Market Realist]
▶ Stocks to Watch: Tesla, Chesapeake Energy, EQT, Caterpillar   [09:28AM  The Wall Street Journal]
▶ 5 Cheap Oil Stocks Under $5   [Jul-01-17 04:01PM  Insider Monkey]
▶ Bottom May Now Be In For Oil And Yields   [Jun-27-17 08:51PM  Forbes]
▶ Is Wall Street Nervous for Chesapeake Energy?   [12:04PM  Market Realist]
▶ What Analysts Recommended for Energy Stocks Last Week   [Jun-26-17 12:05PM  Market Realist]
▶ Last Weeks Crucial Energy Industry Updates   [10:21AM  Market Realist]
▶ Why Oil In The Low $40s Is The Danger Zone   [Jun-21-17 10:00PM  Forbes]
▶ Why Chesapeake Energy Stock Sank 8% Today   [05:26PM  Motley Fool]
▶ Oil: Bear-ish? We'll Show You Bearish   [10:51AM  Barrons.com]
▶ Whats the Forecast for Chesapeake Stock?   [Jun-20-17 06:05PM  Market Realist]
▶ Can Chesapeake Energy Stock Find Its Way Up?   [04:11PM  Market Realist]
▶ What Analysts Recommend for Energy Stocks   [02:17PM  Market Realist]
▶ Impact fee returns decline for third straight year   [Jun-15-17 02:52PM  American City Business Journals]
▶ Chesapeake Energy Was the S&P 500s Top Gainer on June 13   [Jun-14-17 09:59AM  Market Realist]
▶ [$$] Why Having Independent Boards Can Backfire   [12:56AM  The Wall Street Journal]
▶ The Hot Stock: Chesapeake Energy Jumps 4.3%   [Jun-13-17 04:24PM  Barrons.com]
▶ Whats Impacting Chesapeake Energy Stock?   [11:32AM  Market Realist]
▶ We Deliver: AMD, PYPL & more   [Jun-09-17 02:31PM  CNBC Videos]
Stock chart of CHK Financial statements of CHK Annual reports of CHK
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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