Intrinsic value of Chesapeake Energy - CHK

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$4.50

  Intrinsic Value

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  Value-price divergence*

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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 3.9

 

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
  -11,039
  -11,293
  -11,583
  -11,909
  -12,270
  -12,666
  -13,097
  -13,564
  -14,067
  -14,607
  -15,185
  -15,801
  -16,457
  -17,155
  -17,895
  -18,679
  -19,509
  -20,387
  -21,314
  -22,294
  -23,327
  -24,417
  -25,565
  -26,776
  -28,050
  -29,393
  -30,805
  -32,292
  -33,856
  -35,501
Interest expense (income), $m
  344
  348
  232
  241
  252
  263
  276
  290
  305
  322
  340
  359
  379
  401
  424
  449
  475
  503
  533
  564
  597
  631
  668
  707
  748
  790
  836
  883
  933
  986
  1,042
Earnings before tax, $m
  -4,589
  -12,111
  -12,266
  -12,584
  -12,942
  -13,338
  -13,773
  -14,247
  -14,760
  -15,312
  -15,905
  -16,540
  -17,217
  -17,938
  -18,705
  -19,518
  -20,380
  -21,292
  -22,257
  -23,277
  -24,353
  -25,489
  -26,687
  -27,950
  -29,280
  -30,681
  -32,157
  -33,710
  -35,344
  -37,063
  -38,871
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
  -12,266
  -12,584
  -12,942
  -13,338
  -13,773
  -14,247
  -14,760
  -15,312
  -15,905
  -16,540
  -17,217
  -17,938
  -18,705
  -19,518
  -20,380
  -21,292
  -22,257
  -23,277
  -24,353
  -25,489
  -26,687
  -27,950
  -29,280
  -30,681
  -32,157
  -33,710
  -35,344
  -37,063
  -38,871

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
  12,429
  12,715
  13,042
  13,409
  13,816
  14,262
  14,747
  15,273
  15,839
  16,447
  17,098
  17,792
  18,530
  19,316
  20,149
  21,032
  21,966
  22,955
  23,999
  25,102
  26,266
  27,493
  28,786
  30,149
  31,584
  33,095
  34,686
  36,360
  38,121
  39,973
Adjusted assets (=assets-cash), $m
  12,146
  12,429
  12,715
  13,042
  13,409
  13,816
  14,262
  14,747
  15,273
  15,839
  16,447
  17,098
  17,792
  18,530
  19,316
  20,149
  21,032
  21,966
  22,955
  23,999
  25,102
  26,266
  27,493
  28,786
  30,149
  31,584
  33,095
  34,686
  36,360
  38,121
  39,973
Revenue / Adjusted assets
  0.648
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
Average production assets, $m
  12,392
  7,243
  7,409
  7,600
  7,813
  8,050
  8,310
  8,593
  8,899
  9,230
  9,584
  9,963
  10,367
  10,798
  11,255
  11,741
  12,255
  12,800
  13,376
  13,984
  14,627
  15,305
  16,020
  16,773
  17,567
  18,404
  19,284
  20,211
  21,186
  22,213
  23,292
Working capital, $m
  -1,506
  -2,433
  -2,489
  -2,553
  -2,625
  -2,704
  -2,792
  -2,887
  -2,990
  -3,100
  -3,219
  -3,347
  -3,482
  -3,627
  -3,781
  -3,944
  -4,117
  -4,300
  -4,493
  -4,698
  -4,913
  -5,141
  -5,381
  -5,635
  -5,901
  -6,182
  -6,478
  -6,789
  -7,117
  -7,462
  -7,824
Total debt, $m
  10,441
  6,637
  6,894
  7,188
  7,518
  7,884
  8,285
  8,723
  9,196
  9,706
  10,253
  10,838
  11,462
  12,127
  12,834
  13,584
  14,379
  15,220
  16,109
  17,049
  18,042
  19,089
  20,193
  21,357
  22,584
  23,876
  25,236
  26,667
  28,174
  29,758
  31,425
Total liabilities, $m
  14,488
  11,187
  11,444
  11,738
  12,068
  12,434
  12,835
  13,273
  13,746
  14,256
  14,803
  15,388
  16,012
  16,677
  17,384
  18,134
  18,929
  19,770
  20,659
  21,599
  22,592
  23,639
  24,743
  25,907
  27,134
  28,426
  29,786
  31,217
  32,724
  34,308
  35,975
Total equity, $m
  -1,460
  1,243
  1,272
  1,304
  1,341
  1,382
  1,426
  1,475
  1,527
  1,584
  1,645
  1,710
  1,779
  1,853
  1,932
  2,015
  2,103
  2,197
  2,295
  2,400
  2,510
  2,627
  2,749
  2,879
  3,015
  3,158
  3,310
  3,469
  3,636
  3,812
  3,997
Total liabilities and equity, $m
  13,028
  12,430
  12,716
  13,042
  13,409
  13,816
  14,261
  14,748
  15,273
  15,840
  16,448
  17,098
  17,791
  18,530
  19,316
  20,149
  21,032
  21,967
  22,954
  23,999
  25,102
  26,266
  27,492
  28,786
  30,149
  31,584
  33,096
  34,686
  36,360
  38,120
  39,972
Debt-to-equity ratio
  -7.151
  5.340
  5.420
  5.510
  5.610
  5.710
  5.810
  5.910
  6.020
  6.130
  6.230
  6.340
  6.440
  6.540
  6.640
  6.740
  6.840
  6.930
  7.020
  7.100
  7.190
  7.270
  7.350
  7.420
  7.490
  7.560
  7.630
  7.690
  7.750
  7.810
  7.860
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
  -12,266
  -12,584
  -12,942
  -13,338
  -13,773
  -14,247
  -14,760
  -15,312
  -15,905
  -16,540
  -17,217
  -17,938
  -18,705
  -19,518
  -20,380
  -21,292
  -22,257
  -23,277
  -24,353
  -25,489
  -26,687
  -27,950
  -29,280
  -30,681
  -32,157
  -33,710
  -35,344
  -37,063
  -38,871
Depreciation, amort., depletion, $m
  1,107
  724
  741
  760
  781
  805
  831
  859
  890
  923
  958
  996
  1,037
  1,080
  1,126
  1,174
  1,226
  1,280
  1,338
  1,398
  1,463
  1,530
  1,602
  1,677
  1,757
  1,840
  1,928
  2,021
  2,119
  2,221
  2,329
Funds from operations, $m
  -936
  -11,387
  -11,525
  -11,824
  -12,160
  -12,533
  -12,942
  -13,387
  -13,870
  -14,389
  -14,947
  -15,544
  -16,180
  -16,858
  -17,579
  -18,344
  -19,154
  -20,012
  -20,919
  -21,878
  -22,890
  -23,958
  -25,085
  -26,272
  -27,523
  -28,841
  -30,228
  -31,688
  -33,225
  -34,842
  -36,542
Change in working capital, $m
  -732
  -48
  -56
  -64
  -72
  -80
  -87
  -95
  -103
  -111
  -119
  -127
  -136
  -145
  -154
  -163
  -173
  -183
  -193
  -204
  -216
  -228
  -240
  -253
  -267
  -281
  -296
  -311
  -328
  -345
  -363
Cash from operations, $m
  -204
  -18,440
  -11,469
  -11,760
  -12,089
  -12,453
  -12,855
  -13,292
  -13,767
  -14,278
  -14,828
  -15,416
  -16,045
  -16,714
  -17,425
  -18,181
  -18,981
  -19,829
  -20,726
  -21,674
  -22,674
  -23,731
  -24,845
  -26,019
  -27,257
  -28,560
  -29,932
  -31,377
  -32,897
  -34,497
  -36,180
Maintenance CAPEX, $m
  0
  -710
  -724
  -741
  -760
  -781
  -805
  -831
  -859
  -890
  -923
  -958
  -996
  -1,037
  -1,080
  -1,126
  -1,174
  -1,226
  -1,280
  -1,338
  -1,398
  -1,463
  -1,530
  -1,602
  -1,677
  -1,757
  -1,840
  -1,928
  -2,021
  -2,119
  -2,221
New CAPEX, $m
  -2,120
  -141
  -167
  -190
  -214
  -237
  -260
  -283
  -306
  -330
  -354
  -379
  -404
  -431
  -458
  -486
  -515
  -545
  -576
  -609
  -643
  -678
  -715
  -754
  -794
  -836
  -881
  -927
  -975
  -1,026
  -1,079
Cash from investing activities, $m
  -660
  -851
  -891
  -931
  -974
  -1,018
  -1,065
  -1,114
  -1,165
  -1,220
  -1,277
  -1,337
  -1,400
  -1,468
  -1,538
  -1,612
  -1,689
  -1,771
  -1,856
  -1,947
  -2,041
  -2,141
  -2,245
  -2,356
  -2,471
  -2,593
  -2,721
  -2,855
  -2,996
  -3,145
  -3,300
Free cash flow, $m
  -864
  -19,292
  -12,360
  -12,692
  -13,062
  -13,472
  -13,920
  -14,406
  -14,932
  -15,498
  -16,105
  -16,754
  -17,445
  -18,181
  -18,963
  -19,792
  -20,670
  -21,599
  -22,582
  -23,620
  -24,715
  -25,871
  -27,090
  -28,375
  -29,728
  -31,153
  -32,653
  -34,232
  -35,894
  -37,642
  -39,480
Issuance/(repayment) of debt, $m
  952
  -3,301
  257
  294
  330
  366
  401
  437
  473
  510
  547
  585
  625
  665
  707
  750
  795
  841
  890
  940
  992
  1,047
  1,104
  1,164
  1,226
  1,292
  1,360
  1,432
  1,506
  1,585
  1,667
Issuance/(repurchase) of shares, $m
  0
  25,251
  12,131
  12,430
  12,769
  13,146
  13,563
  14,018
  14,512
  15,045
  15,619
  16,233
  16,890
  17,590
  18,334
  19,125
  19,964
  20,852
  21,791
  22,784
  23,833
  24,941
  26,109
  27,340
  28,638
  30,005
  31,444
  32,960
  34,555
  36,233
  37,998
Cash from financing (excl. dividends), $m  
  921
  21,950
  12,388
  12,724
  13,099
  13,512
  13,964
  14,455
  14,985
  15,555
  16,166
  16,818
  17,515
  18,255
  19,041
  19,875
  20,759
  21,693
  22,681
  23,724
  24,825
  25,988
  27,213
  28,504
  29,864
  31,297
  32,804
  34,392
  36,061
  37,818
  39,665
Total cash flow (excl. dividends), $m
  57
  -22,593
  -12,103
  -12,398
  -12,732
  -13,106
  -13,518
  -13,969
  -14,459
  -14,989
  -15,558
  -16,168
  -16,821
  -17,516
  -18,256
  -19,042
  -19,875
  -20,758
  -21,692
  -22,680
  -23,723
  -24,824
  -25,986
  -27,211
  -28,501
  -29,861
  -31,293
  -32,801
  -34,388
  -36,057
  -37,813
Retained Cash Flow (-), $m
  3,598
  -3,540
  -29
  -33
  -37
  -41
  -45
  -49
  -53
  -57
  -61
  -65
  -69
  -74
  -79
  -83
  -88
  -93
  -99
  -104
  -110
  -116
  -123
  -129
  -136
  -144
  -151
  -159
  -167
  -176
  -185
Prev. year cash balance distribution, $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
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, %
 
  16.10
  16.91
  17.75
  18.64
  19.57
  20.55
  21.58
  22.65
  23.79
  24.98
  26.23
  27.54
  28.91
  30.36
  31.88
  33.47
  35.14
  36.90
  38.75
  40.68
  42.72
  44.85
  47.10
  49.45
  51.92
  54.52
  57.25
  60.11
  63.11
  66.27
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 -0.9
Price to Sales 0.5
Price to Book -2.8
Price to Tangible Book
Price to Cash Flow -19.7
Price to Free Cash Flow -1.7
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 16.1%, 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 90.2%.

Life of production assets of 10 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 -30.3%. 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 - $-1415 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 $3.9 billion.


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COMPANY NEWS

▶ 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]
▶ The Next Big U.S. Shale Play   [Jun-08-17 06:00PM  Oilprice.com]
▶ Can Chesapeake Stock Find Support?   [09:05AM  Market Realist]
▶ Natural GasWeighted Stocks and Natural Gas Last Week   [Jun-06-17 04:35PM  Market Realist]
▶ Libya and OPEC Pressure Crude Oil Prices to a 3-Week Low   [Jun-01-17 09:35AM  Market Realist]
▶ 3 Stocks With Clayton Williams-Like Return Potential   [May-27-17 09:10AM  Motley Fool]
▶ Does OPEC Need $80 Oil?   [May-23-17 09:15PM  Forbes]
▶ Energy Stocks that Could Outdo Natural Gas   [06:06PM  Market Realist]
▶ 5 Zombie Stocks Coming Back From the Dead   [May-20-17 03:00PM  Motley Fool]
▶ Jim Cramer's View on Cabot Oil, Chesapeake Energy   [May-19-17 12:31PM  TheStreet.com]
▶ Energy Companies Earnings for May 812, 2017   [May-16-17 09:08AM  Market Realist]
▶ Energy Industry Updates for May 812, 2017   [May-15-17 04:41PM  Market Realist]
▶ Here Are Some of Congress' Favorite Stocks   [12:42PM  TheStreet.com]
▶ How Is Short Interest in Chesapeake Energy Stock Trending?   [May-12-17 07:36AM  Market Realist]
▶ Was the Merrill Lynch Downgrade of Chesapeake Justified?   [May-11-17 12:55PM  24/7 Wall St.]
▶ Whats Keeping Chesapeake Energy Stock Low?   [08:29AM  Market Realist]
▶ These 5 Oil Stocks Got Blasted in April   [12:00PM  Motley Fool]
▶ Chesapeake Energy: These Things Take Time   [May-05-17 02:20PM  Barrons.com]
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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