Intrinsic value of Chesapeake Energy - CHK

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$5.29

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$5.29

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

 
Value-price divergence* premium content

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*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 4.9

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  7,872
  8,029
  8,214
  8,425
  8,662
  8,925
  9,213
  9,527
  9,866
  10,232
  10,625
  11,045
  11,493
  11,971
  12,478
  13,016
  13,587
  14,190
  14,829
  15,504
  16,216
  16,968
  17,760
  18,596
  19,476
  20,403
  21,380
  22,407
  23,488
  24,626
  25,822
Variable operating expenses, $m
 
  19,793
  20,248
  20,768
  21,352
  22,000
  22,710
  23,483
  24,321
  25,223
  26,191
  27,226
  28,331
  29,508
  30,758
  32,085
  33,491
  34,979
  36,553
  38,216
  39,972
  41,825
  43,779
  45,839
  48,009
  50,294
  52,701
  55,233
  57,899
  60,703
  63,652
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
  19,793
  20,248
  20,768
  21,352
  22,000
  22,710
  23,483
  24,321
  25,223
  26,191
  27,226
  28,331
  29,508
  30,758
  32,085
  33,491
  34,979
  36,553
  38,216
  39,972
  41,825
  43,779
  45,839
  48,009
  50,294
  52,701
  55,233
  57,899
  60,703
  63,652
Operating income, $m
  -4,294
  -11,763
  -12,034
  -12,343
  -12,690
  -13,075
  -13,497
  -13,957
  -14,454
  -14,990
  -15,566
  -16,181
  -16,838
  -17,537
  -18,280
  -19,069
  -19,904
  -20,789
  -21,724
  -22,713
  -23,756
  -24,857
  -26,019
  -27,243
  -28,532
  -29,891
  -31,321
  -32,826
  -34,410
  -36,077
  -37,830
EBITDA, $m
  -3,187
  -10,635
  -10,879
  -11,159
  -11,473
  -11,821
  -12,202
  -12,618
  -13,068
  -13,552
  -14,072
  -14,629
  -15,223
  -15,855
  -16,527
  -17,239
  -17,995
  -18,795
  -19,640
  -20,534
  -21,477
  -22,473
  -23,523
  -24,629
  -25,795
  -27,023
  -28,316
  -29,677
  -31,109
  -32,616
  -34,201
Interest expense (income), $m
  344
  348
  249
  258
  268
  279
  292
  306
  321
  338
  356
  375
  395
  417
  440
  465
  491
  519
  548
  579
  612
  647
  683
  722
  762
  805
  850
  898
  948
  1,000
  1,055
Earnings before tax, $m
  -4,589
  -12,111
  -12,282
  -12,601
  -12,958
  -13,354
  -13,789
  -14,263
  -14,776
  -15,328
  -15,921
  -16,556
  -17,233
  -17,954
  -18,720
  -19,534
  -20,395
  -21,308
  -22,272
  -23,292
  -24,368
  -25,504
  -26,702
  -27,964
  -29,295
  -30,696
  -32,171
  -33,724
  -35,358
  -37,077
  -38,885
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
  -12,111
  -12,282
  -12,601
  -12,958
  -13,354
  -13,789
  -14,263
  -14,776
  -15,328
  -15,921
  -16,556
  -17,233
  -17,954
  -18,720
  -19,534
  -20,395
  -21,308
  -22,272
  -23,292
  -24,368
  -25,504
  -26,702
  -27,964
  -29,295
  -30,696
  -32,171
  -33,724
  -35,358
  -37,077
  -38,885

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
  12,391
  12,676
  13,002
  13,368
  13,773
  14,218
  14,702
  15,226
  15,791
  16,397
  17,045
  17,737
  18,473
  19,256
  20,087
  20,967
  21,899
  22,884
  23,925
  25,025
  26,184
  27,408
  28,697
  30,056
  31,487
  32,993
  34,579
  36,247
  38,003
  39,849
Adjusted assets (=assets-cash), $m
  12,146
  12,391
  12,676
  13,002
  13,368
  13,773
  14,218
  14,702
  15,226
  15,791
  16,397
  17,045
  17,737
  18,473
  19,256
  20,087
  20,967
  21,899
  22,884
  23,925
  25,025
  26,184
  27,408
  28,697
  30,056
  31,487
  32,993
  34,579
  36,247
  38,003
  39,849
Revenue / Adjusted assets
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
  0.648
Average production assets, $m
  12,392
  12,638
  12,929
  13,261
  13,634
  14,048
  14,501
  14,995
  15,530
  16,106
  16,724
  17,385
  18,091
  18,842
  19,640
  20,487
  21,385
  22,336
  23,341
  24,403
  25,524
  26,707
  27,955
  29,270
  30,655
  32,115
  33,651
  35,269
  36,971
  38,761
  40,644
Working capital, $m
  -1,506
  -1,919
  -1,963
  -2,014
  -2,070
  -2,133
  -2,202
  -2,277
  -2,358
  -2,446
  -2,539
  -2,640
  -2,747
  -2,861
  -2,982
  -3,111
  -3,247
  -3,391
  -3,544
  -3,705
  -3,876
  -4,055
  -4,245
  -4,444
  -4,655
  -4,876
  -5,110
  -5,355
  -5,614
  -5,886
  -6,172
Total debt, $m
  10,441
  7,105
  7,361
  7,655
  7,984
  8,349
  8,749
  9,185
  9,656
  10,165
  10,710
  11,293
  11,916
  12,579
  13,283
  14,031
  14,823
  15,662
  16,549
  17,486
  18,475
  19,519
  20,620
  21,780
  23,003
  24,291
  25,647
  27,074
  28,576
  30,156
  31,817
Total liabilities, $m
  14,488
  11,152
  11,408
  11,702
  12,031
  12,396
  12,796
  13,232
  13,703
  14,212
  14,757
  15,340
  15,963
  16,626
  17,330
  18,078
  18,870
  19,709
  20,596
  21,533
  22,522
  23,566
  24,667
  25,827
  27,050
  28,338
  29,694
  31,121
  32,623
  34,203
  35,864
Total equity, $m
  -1,460
  1,239
  1,268
  1,300
  1,337
  1,377
  1,422
  1,470
  1,523
  1,579
  1,640
  1,704
  1,774
  1,847
  1,926
  2,009
  2,097
  2,190
  2,288
  2,393
  2,502
  2,618
  2,741
  2,870
  3,006
  3,149
  3,299
  3,458
  3,625
  3,800
  3,985
Total liabilities and equity, $m
  13,028
  12,391
  12,676
  13,002
  13,368
  13,773
  14,218
  14,702
  15,226
  15,791
  16,397
  17,044
  17,737
  18,473
  19,256
  20,087
  20,967
  21,899
  22,884
  23,926
  25,024
  26,184
  27,408
  28,697
  30,056
  31,487
  32,993
  34,579
  36,248
  38,003
  39,849
Debt-to-equity ratio
  -7.151
  5.730
  5.810
  5.890
  5.970
  6.060
  6.150
  6.250
  6.340
  6.440
  6.530
  6.630
  6.720
  6.810
  6.900
  6.990
  7.070
  7.150
  7.230
  7.310
  7.380
  7.450
  7.520
  7.590
  7.650
  7.710
  7.770
  7.830
  7.880
  7.940
  7.980
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
  -12,111
  -12,282
  -12,601
  -12,958
  -13,354
  -13,789
  -14,263
  -14,776
  -15,328
  -15,921
  -16,556
  -17,233
  -17,954
  -18,720
  -19,534
  -20,395
  -21,308
  -22,272
  -23,292
  -24,368
  -25,504
  -26,702
  -27,964
  -29,295
  -30,696
  -32,171
  -33,724
  -35,358
  -37,077
  -38,885
Depreciation, amort., depletion, $m
  1,107
  1,128
  1,154
  1,184
  1,217
  1,254
  1,295
  1,339
  1,387
  1,438
  1,493
  1,552
  1,615
  1,682
  1,754
  1,829
  1,909
  1,994
  2,084
  2,179
  2,279
  2,385
  2,496
  2,613
  2,737
  2,867
  3,005
  3,149
  3,301
  3,461
  3,629
Funds from operations, $m
  -936
  -10,983
  -11,128
  -11,417
  -11,741
  -12,100
  -12,494
  -12,924
  -13,389
  -13,890
  -14,428
  -15,004
  -15,618
  -16,272
  -16,967
  -17,704
  -18,486
  -19,313
  -20,188
  -21,113
  -22,089
  -23,120
  -24,206
  -25,351
  -26,558
  -27,829
  -29,167
  -30,575
  -32,057
  -33,616
  -35,256
Change in working capital, $m
  -732
  -38
  -44
  -50
  -57
  -63
  -69
  -75
  -81
  -87
  -94
  -100
  -107
  -114
  -121
  -129
  -136
  -144
  -153
  -161
  -170
  -180
  -189
  -200
  -210
  -222
  -233
  -246
  -258
  -272
  -286
Cash from operations, $m
  -204
  -12,756
  -11,084
  -11,366
  -11,684
  -12,037
  -12,426
  -12,849
  -13,308
  -13,803
  -14,334
  -14,903
  -15,511
  -16,158
  -16,846
  -17,576
  -18,350
  -19,169
  -20,036
  -20,952
  -21,919
  -22,940
  -24,016
  -25,151
  -26,347
  -27,607
  -28,933
  -30,329
  -31,799
  -33,344
  -34,970
Maintenance CAPEX, $m
  0
  -1,106
  -1,128
  -1,154
  -1,184
  -1,217
  -1,254
  -1,295
  -1,339
  -1,387
  -1,438
  -1,493
  -1,552
  -1,615
  -1,682
  -1,754
  -1,829
  -1,909
  -1,994
  -2,084
  -2,179
  -2,279
  -2,385
  -2,496
  -2,613
  -2,737
  -2,867
  -3,005
  -3,149
  -3,301
  -3,461
New CAPEX, $m
  -2,120
  -247
  -291
  -332
  -373
  -413
  -454
  -494
  -535
  -576
  -618
  -661
  -706
  -751
  -798
  -847
  -898
  -950
  -1,005
  -1,062
  -1,121
  -1,183
  -1,248
  -1,315
  -1,386
  -1,459
  -1,537
  -1,617
  -1,702
  -1,790
  -1,883
Cash from investing activities, $m
  -660
  -1,353
  -1,419
  -1,486
  -1,557
  -1,630
  -1,708
  -1,789
  -1,874
  -1,963
  -2,056
  -2,154
  -2,258
  -2,366
  -2,480
  -2,601
  -2,727
  -2,859
  -2,999
  -3,146
  -3,300
  -3,462
  -3,633
  -3,811
  -3,999
  -4,196
  -4,404
  -4,622
  -4,851
  -5,091
  -5,344
Free cash flow, $m
  -864
  -14,110
  -12,503
  -12,853
  -13,241
  -13,668
  -14,133
  -14,638
  -15,181
  -15,765
  -16,390
  -17,058
  -17,768
  -18,524
  -19,326
  -20,176
  -21,077
  -22,029
  -23,035
  -24,098
  -25,219
  -26,402
  -27,649
  -28,963
  -30,346
  -31,803
  -33,337
  -34,951
  -36,650
  -38,436
  -40,314
Issuance/(repayment) of debt, $m
  952
  -2,833
  256
  293
  329
  365
  400
  436
  472
  508
  545
  583
  623
  663
  705
  748
  792
  839
  887
  937
  989
  1,044
  1,101
  1,160
  1,223
  1,288
  1,356
  1,427
  1,502
  1,580
  1,662
Issuance/(repurchase) of shares, $m
  0
  19,642
  12,275
  12,592
  12,949
  13,344
  13,778
  14,250
  14,762
  15,314
  15,906
  16,539
  17,215
  17,935
  18,700
  19,512
  20,373
  21,283
  22,247
  23,265
  24,340
  25,474
  26,670
  27,931
  29,260
  30,659
  32,132
  33,683
  35,315
  37,031
  38,837
Cash from financing (excl. dividends), $m  
  921
  16,809
  12,531
  12,885
  13,278
  13,709
  14,178
  14,686
  15,234
  15,822
  16,451
  17,122
  17,838
  18,598
  19,405
  20,260
  21,165
  22,122
  23,134
  24,202
  25,329
  26,518
  27,771
  29,091
  30,483
  31,947
  33,488
  35,110
  36,817
  38,611
  40,499
Total cash flow (excl. dividends), $m
  57
  -16,943
  -12,246
  -12,560
  -12,912
  -13,303
  -13,733
  -14,202
  -14,710
  -15,257
  -15,845
  -16,474
  -17,146
  -17,861
  -18,622
  -19,429
  -20,284
  -21,190
  -22,148
  -23,161
  -24,230
  -25,358
  -26,548
  -27,802
  -29,124
  -30,516
  -31,981
  -33,524
  -35,148
  -36,856
  -38,653
Retained Cash Flow (-), $m
  3,598
  -3,078
  -28
  -33
  -37
  -41
  -44
  -48
  -52
  -56
  -61
  -65
  -69
  -74
  -78
  -83
  -88
  -93
  -99
  -104
  -110
  -116
  -122
  -129
  -136
  -143
  -151
  -159
  -167
  -176
  -185
Prev. year cash balance distribution, $m
 
  379
  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
 
  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
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
 
  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
Current shareholders' claim on cash, %
  100
  50.0
  4.6
  0.4
  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 -1.1
Price to Sales 0.6
Price to Book -3.2
Price to Tangible Book
Price to Cash Flow -23.2
Price to Free Cash Flow -2
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 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 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 -23.9%. 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 920.875 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 $4.9 billion.


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COMPANY NEWS

▶ How Natural Gas Prices Are Impacting Chesapeake Energy Stock   [Apr-27-17 03:35PM  Market Realist]
▶ Mach CEO Expresses Interest in BHP Fayetteville Assets   [Apr-26-17 12:50PM  Bloomberg Video]
▶ Which Gas-Weighted Stocks Could Outdo Natural Gas?   [Apr-25-17 04:57PM  Market Realist]
▶ Oil & Gas Sector: How to Find Hidden Gems   [02:48PM  Investopedia]
▶ Natural Gas Price Flat After Storage Total Rises   [Apr-20-17 10:55AM  24/7 Wall St.]
▶ Analysts Recommendations for Chesapeake Energy Stock   [Apr-17-17 03:35PM  Market Realist]
▶ Why Chesapeake Energy Stock Fell Last Week   [12:34PM  Market Realist]
▶ [$$] Chesapeake digs deep to overcome its weaknesses   [Apr-16-17 07:07AM  Financial Times]
▶ Longleaf Partners Comments on Chesapeake Energy   [Apr-14-17 06:09PM  GuruFocus.com]
▶ Longleaf Partners 1st Quarter Commentary   [05:50PM  GuruFocus.com]
▶ The Biggest Loser: Chesapeake Energy Drops 4.2%   [Apr-13-17 04:41PM  Barrons.com]
▶ Thomas Kee: Im looking to sell oil-related investments   [Apr-12-17 01:50PM  MarketWatch]
▶ Uptrend in Natural Gas: Which Gas-Weighted Stocks to Track   [Apr-11-17 12:57PM  Market Realist]
▶ ETF Flopper: What Goes Up, Must Come Down   [Apr-05-17 06:49PM  Barrons.com]
▶ ETF Flyer: Natural Gas High On Expectations   [Apr-04-17 05:50PM  Barrons.com]
▶ How to trade 6 surging stocks   [Apr-03-17 05:00PM  CNBC Videos]
▶ Oil and Gas Stock Roundup: Welcome Back, $50 Oil   [Apr-01-17 10:49AM  at Motley Fool]
▶ Chesapeake Energy Could Have A Tough Year   [Mar-31-17 08:38AM  at Forbes]
▶ U.S. Natural Gas: Changing Dynamics   [02:57PM  at Barrons.com]
▶ Nasdaq closes for 4th straight gain, as Dow lags behind   [Mar-29-17 04:28PM  at MarketWatch]
▶ Chesapeake Energy: A Good Start?   [10:08AM  at Barrons.com]
▶ Wait, Chesapeake Energy Can Double?!?!   [10:30AM  at Barrons.com]
▶ Five Stocks Under $10 to Buy Now   [Mar-13-17 08:32PM  at Insider Monkey]
Stock chart of CHK Financial statements 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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