Intrinsic value of Cabot Oil&Gas - COG

Previous Close

$24.98

  Intrinsic Value

$1.40

stock screener

  Rating & Target

str. sell

-94%

  Value-price divergence*

-83%

Previous close

$24.98

 
Intrinsic value

$1.40

 
Up/down potential

-94%

 
Rating

str. sell

 
Value-price divergence*

-83%

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

We calculate the intrinsic value of COG 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 11.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -14.81
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  1,156
  1,850
  2,858
  4,274
  6,201
  8,748
  12,027
  16,144
  21,198
  27,276
  34,452
  42,782
  52,305
  63,045
  75,011
  88,200
  102,598
  118,184
  134,933
  152,819
  171,814
  191,894
  213,036
  235,227
  258,455
  282,716
  308,015
  334,361
  361,773
  390,275
  419,899
Variable operating expenses, $m
 
  1,974
  3,049
  4,560
  6,616
  9,335
  12,833
  17,225
  22,618
  29,104
  36,761
  45,648
  55,809
  67,269
  80,037
  94,109
  109,472
  126,102
  143,974
  163,058
  183,326
  204,750
  227,310
  250,987
  275,771
  301,658
  328,652
  356,763
  386,012
  416,423
  448,032
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
  1,727
  1,974
  3,049
  4,560
  6,616
  9,335
  12,833
  17,225
  22,618
  29,104
  36,761
  45,648
  55,809
  67,269
  80,037
  94,109
  109,472
  126,102
  143,974
  163,058
  183,326
  204,750
  227,310
  250,987
  275,771
  301,658
  328,652
  356,763
  386,012
  416,423
  448,032
Operating income, $m
  -571
  -124
  -191
  -286
  -415
  -586
  -806
  -1,082
  -1,420
  -1,828
  -2,308
  -2,866
  -3,504
  -4,224
  -5,026
  -5,909
  -6,874
  -7,918
  -9,041
  -10,239
  -11,512
  -12,857
  -14,273
  -15,760
  -17,316
  -18,942
  -20,637
  -22,402
  -24,239
  -26,148
  -28,133
EBITDA, $m
  19
  614
  949
  1,419
  2,059
  2,905
  3,994
  5,361
  7,040
  9,058
  11,442
  14,208
  17,370
  20,937
  24,911
  29,291
  34,073
  39,249
  44,811
  50,751
  57,059
  63,728
  70,749
  78,119
  85,833
  93,890
  102,292
  111,041
  120,145
  129,610
  139,448
Interest expense (income), $m
  87
  75
  150
  259
  413
  621
  898
  1,253
  1,699
  2,247
  2,906
  3,684
  4,586
  5,619
  6,783
  8,080
  9,509
  11,070
  12,759
  14,575
  16,513
  18,572
  20,748
  23,040
  25,445
  27,963
  30,592
  33,334
  36,190
  39,161
  42,250
Earnings before tax, $m
  -660
  -198
  -341
  -545
  -828
  -1,208
  -1,703
  -2,335
  -3,119
  -4,074
  -5,214
  -6,550
  -8,091
  -9,843
  -11,808
  -13,989
  -16,383
  -18,988
  -21,800
  -24,813
  -28,025
  -31,429
  -35,022
  -38,800
  -42,762
  -46,905
  -51,229
  -55,737
  -60,429
  -65,310
  -70,384
Tax expense, $m
  -243
  0
  0
  0
  0
  0
  0
  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
  -417
  -198
  -341
  -545
  -828
  -1,208
  -1,703
  -2,335
  -3,119
  -4,074
  -5,214
  -6,550
  -8,091
  -9,843
  -11,808
  -13,989
  -16,383
  -18,988
  -21,800
  -24,813
  -28,025
  -31,429
  -35,022
  -38,800
  -42,762
  -46,905
  -51,229
  -55,737
  -60,429
  -65,310
  -70,384

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  499
  0
  0
  0
  0
  0
  0
  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
  5,123
  7,398
  11,431
  17,094
  24,803
  34,994
  48,108
  64,575
  84,791
  109,106
  137,809
  171,128
  209,220
  252,180
  300,045
  352,800
  410,391
  472,736
  539,734
  611,277
  687,256
  767,574
  852,146
  940,907
  1,033,818
  1,130,864
  1,232,059
  1,337,445
  1,447,091
  1,561,099
  1,679,596
Adjusted assets (=assets-cash), $m
  4,624
  7,398
  11,431
  17,094
  24,803
  34,994
  48,108
  64,575
  84,791
  109,106
  137,809
  171,128
  209,220
  252,180
  300,045
  352,800
  410,391
  472,736
  539,734
  611,277
  687,256
  767,574
  852,146
  940,907
  1,033,818
  1,130,864
  1,232,059
  1,337,445
  1,447,091
  1,561,099
  1,679,596
Revenue / Adjusted assets
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
  0.250
Average production assets, $m
  4,614
  7,382
  11,405
  17,056
  24,747
  34,915
  48,000
  64,430
  84,600
  108,860
  137,499
  170,743
  208,749
  251,613
  299,370
  352,006
  409,467
  471,672
  538,519
  609,901
  685,710
  765,847
  850,228
  938,790
  1,031,492
  1,128,320
  1,229,287
  1,334,435
  1,443,835
  1,557,587
  1,675,816
Working capital, $m
  458
  -65
  -100
  -150
  -217
  -306
  -421
  -565
  -742
  -955
  -1,206
  -1,497
  -1,831
  -2,207
  -2,625
  -3,087
  -3,591
  -4,136
  -4,723
  -5,349
  -6,013
  -6,716
  -7,456
  -8,233
  -9,046
  -9,895
  -10,781
  -11,703
  -12,662
  -13,660
  -14,696
Total debt, $m
  1,521
  3,057
  5,287
  8,419
  12,682
  18,317
  25,570
  34,676
  45,855
  59,301
  75,174
  93,600
  114,665
  138,422
  164,891
  194,064
  225,912
  260,389
  297,439
  337,002
  379,019
  423,435
  470,203
  519,288
  570,668
  624,334
  680,295
  738,573
  799,208
  862,254
  927,782
Total liabilities, $m
  2,555
  4,091
  6,321
  9,453
  13,716
  19,351
  26,604
  35,710
  46,889
  60,335
  76,208
  94,634
  115,699
  139,456
  165,925
  195,098
  226,946
  261,423
  298,473
  338,036
  380,053
  424,469
  471,237
  520,322
  571,702
  625,368
  681,329
  739,607
  800,242
  863,288
  928,816
Total equity, $m
  2,568
  3,307
  5,109
  7,641
  11,087
  15,642
  21,504
  28,865
  37,902
  48,770
  61,601
  76,494
  93,521
  112,725
  134,120
  157,701
  183,445
  211,313
  241,261
  273,241
  307,204
  343,106
  380,909
  420,586
  462,117
  505,496
  550,730
  597,838
  646,850
  697,811
  750,779
Total liabilities and equity, $m
  5,123
  7,398
  11,430
  17,094
  24,803
  34,993
  48,108
  64,575
  84,791
  109,105
  137,809
  171,128
  209,220
  252,181
  300,045
  352,799
  410,391
  472,736
  539,734
  611,277
  687,257
  767,575
  852,146
  940,908
  1,033,819
  1,130,864
  1,232,059
  1,337,445
  1,447,092
  1,561,099
  1,679,595
Debt-to-equity ratio
  0.592
  0.920
  1.030
  1.100
  1.140
  1.170
  1.190
  1.200
  1.210
  1.220
  1.220
  1.220
  1.230
  1.230
  1.230
  1.230
  1.230
  1.230
  1.230
  1.230
  1.230
  1.230
  1.230
  1.230
  1.230
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
Adjusted equity ratio
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447
  0.447

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -417
  -198
  -341
  -545
  -828
  -1,208
  -1,703
  -2,335
  -3,119
  -4,074
  -5,214
  -6,550
  -8,091
  -9,843
  -11,808
  -13,989
  -16,383
  -18,988
  -21,800
  -24,813
  -28,025
  -31,429
  -35,022
  -38,800
  -42,762
  -46,905
  -51,229
  -55,737
  -60,429
  -65,310
  -70,384
Depreciation, amort., depletion, $m
  590
  738
  1,140
  1,706
  2,475
  3,491
  4,800
  6,443
  8,460
  10,886
  13,750
  17,074
  20,875
  25,161
  29,937
  35,201
  40,947
  47,167
  53,852
  60,990
  68,571
  76,585
  85,023
  93,879
  103,149
  112,832
  122,929
  133,444
  144,384
  155,759
  167,582
Funds from operations, $m
  324
  540
  799
  1,160
  1,647
  2,284
  3,097
  4,108
  5,341
  6,812
  8,536
  10,524
  12,784
  15,319
  18,129
  21,212
  24,564
  28,179
  32,052
  36,177
  40,546
  45,156
  50,001
  55,079
  60,388
  65,927
  71,699
  77,707
  83,955
  90,449
  97,198
Change in working capital, $m
  -68
  -24
  -35
  -50
  -67
  -89
  -115
  -144
  -177
  -213
  -251
  -292
  -333
  -376
  -419
  -462
  -504
  -546
  -586
  -626
  -665
  -703
  -740
  -777
  -813
  -849
  -885
  -922
  -959
  -998
  -1,037
Cash from operations, $m
  392
  564
  834
  1,210
  1,714
  2,373
  3,211
  4,253
  5,518
  7,024
  8,787
  10,816
  13,117
  15,695
  18,547
  21,673
  25,067
  28,725
  32,639
  36,803
  41,211
  45,859
  50,741
  55,856
  61,201
  66,776
  72,585
  78,629
  84,914
  91,447
  98,235
Maintenance CAPEX, $m
  0
  -461
  -738
  -1,140
  -1,706
  -2,475
  -3,491
  -4,800
  -6,443
  -8,460
  -10,886
  -13,750
  -17,074
  -20,875
  -25,161
  -29,937
  -35,201
  -40,947
  -47,167
  -53,852
  -60,990
  -68,571
  -76,585
  -85,023
  -93,879
  -103,149
  -112,832
  -122,929
  -133,444
  -144,384
  -155,759
New CAPEX, $m
  -375
  -2,768
  -4,023
  -5,651
  -7,691
  -10,168
  -13,085
  -16,430
  -20,171
  -24,260
  -28,639
  -33,244
  -38,007
  -42,864
  -47,757
  -52,636
  -57,461
  -62,205
  -66,847
  -71,382
  -75,809
  -80,137
  -84,381
  -88,562
  -92,702
  -96,828
  -100,967
  -105,148
  -109,400
  -113,751
  -118,230
Cash from investing activities, $m
  -353
  -3,229
  -4,761
  -6,791
  -9,397
  -12,643
  -16,576
  -21,230
  -26,614
  -32,720
  -39,525
  -46,994
  -55,081
  -63,739
  -72,918
  -82,573
  -92,662
  -103,152
  -114,014
  -125,234
  -136,799
  -148,708
  -160,966
  -173,585
  -186,581
  -199,977
  -213,799
  -228,077
  -242,844
  -258,135
  -273,989
Free cash flow, $m
  39
  -2,666
  -3,927
  -5,582
  -7,683
  -10,269
  -13,365
  -16,977
  -21,096
  -25,695
  -30,738
  -36,178
  -41,963
  -48,044
  -54,371
  -60,900
  -67,595
  -74,427
  -81,376
  -88,431
  -95,588
  -102,849
  -110,225
  -117,729
  -125,380
  -133,201
  -141,214
  -149,448
  -157,930
  -166,688
  -175,754
Issuance/(repayment) of debt, $m
  -497
  1,536
  2,230
  3,132
  4,263
  5,635
  7,252
  9,106
  11,179
  13,446
  15,873
  18,425
  21,065
  23,757
  26,469
  29,173
  31,848
  34,477
  37,050
  39,563
  42,017
  44,416
  46,768
  49,085
  51,380
  53,667
  55,961
  58,278
  60,635
  63,046
  65,528
Issuance/(repurchase) of shares, $m
  995
  1,437
  2,144
  3,077
  4,274
  5,763
  7,566
  9,695
  12,156
  14,943
  18,045
  21,443
  25,118
  29,046
  33,204
  37,570
  42,126
  46,856
  51,748
  56,793
  61,988
  67,331
  72,825
  78,477
  84,293
  90,284
  96,463
  102,844
  109,441
  116,271
  123,352
Cash from financing (excl. dividends), $m  
  495
  2,973
  4,374
  6,209
  8,537
  11,398
  14,818
  18,801
  23,335
  28,389
  33,918
  39,868
  46,183
  52,803
  59,673
  66,743
  73,974
  81,333
  88,798
  96,356
  104,005
  111,747
  119,593
  127,562
  135,673
  143,951
  152,424
  161,122
  170,076
  179,317
  188,880
Total cash flow (excl. dividends), $m
  534
  307
  447
  627
  854
  1,129
  1,453
  1,824
  2,239
  2,693
  3,180
  3,691
  4,220
  4,759
  5,302
  5,844
  6,380
  6,906
  7,422
  7,925
  8,417
  8,897
  9,368
  9,833
  10,292
  10,750
  11,210
  11,674
  12,146
  12,629
  13,126
Retained Cash Flow (-), $m
  -559
  -1,437
  -2,144
  -3,077
  -4,274
  -5,763
  -7,566
  -9,695
  -12,156
  -14,943
  -18,045
  -21,443
  -25,118
  -29,046
  -33,204
  -37,570
  -42,126
  -46,856
  -51,748
  -56,793
  -61,988
  -67,331
  -72,825
  -78,477
  -84,293
  -90,284
  -96,463
  -102,844
  -109,441
  -116,271
  -123,352
Prev. year cash balance distribution, $m
 
  499
  0
  0
  0
  0
  0
  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
 
  -630
  -1,697
  -2,450
  -3,420
  -4,634
  -6,113
  -7,871
  -9,917
  -12,250
  -14,865
  -17,752
  -20,898
  -24,287
  -27,902
  -31,726
  -35,747
  -39,950
  -44,326
  -48,868
  -53,571
  -58,434
  -63,457
  -68,644
  -74,001
  -79,534
  -85,254
  -91,170
  -97,295
  -103,642
  -110,225
Discount rate, %
 
  4.90
  5.15
  5.40
  5.67
  5.96
  6.25
  6.57
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
PV of cash for distribution, $m
 
  -601
  -1,535
  -2,092
  -2,743
  -3,470
  -4,248
  -5,043
  -5,817
  -6,530
  -7,145
  -7,628
  -7,956
  -8,114
  -8,097
  -7,911
  -7,571
  -7,100
  -6,525
  -5,877
  -5,188
  -4,487
  -3,801
  -3,152
  -2,558
  -2,030
  -1,575
  -1,193
  -881
  -635
  -445
Current shareholders' claim on cash, %
  100
  86.6
  75.6
  66.6
  59.2
  53.0
  47.9
  43.5
  39.7
  36.5
  33.7
  31.3
  29.1
  27.3
  25.6
  24.1
  22.7
  21.5
  20.4
  19.3
  18.4
  17.5
  16.8
  16.0
  15.3
  14.7
  14.1
  13.5
  13.0
  12.5
  12.0

Cabot Oil & Gas Corporation, an independent oil and gas company, develops, exploits, explores for, produces, and markets natural gas, oil, and natural gas liquids in the United States. The company primarily focuses on the Marcellus Shale in northeast Pennsylvania with approximately 200,000 net acres in the dry gas window of the play; and the Eagle Ford Shale in south Texas with approximately 85,500 net acres in the oil window of the play. It also transports, stores, gathers, and purchases natural gas for resale. The company sells its natural gas to industrial customers, local distribution companies, and gas marketers through gathering systems and pipelines, as well as to intrastate pipelines, natural gas processors, and marketing companies. As of December 31, 2015, it had proved reserves of approximately 8,190 billion cubic feet of natural gas equivalent. The company was founded in 1989 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Cabot Oil&Gas (COG)

Valuation Ratios
P/E Ratio -27.9
Price to Sales 10.1
Price to Book 4.5
Price to Tangible Book
Price to Cash Flow 29.6
Price to Free Cash Flow 683.5
Growth Rates
Sales Growth Rate -14.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -60.8%
Cap. Spend. - 3 Yr. Gr. Rate -20.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 59.2%
Total Debt to Equity 59.2%
Interest Coverage -7
Management Effectiveness
Return On Assets -7%
Ret/ On Assets - 3 Yr. Avg. -1.2%
Return On Total Capital -10.3%
Ret/ On T. Cap. - 3 Yr. Avg. -3.4%
Return On Equity -18.2%
Return On Equity - 3 Yr. Avg. -6.3%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 52.6%
Gross Margin - 3 Yr. Avg. 61.9%
EBITDA Margin 1.5%
EBITDA Margin - 3 Yr. Avg. 22.3%
Operating Margin -49.4%
Oper. Margin - 3 Yr. Avg. -17.1%
Pre-Tax Margin -57.1%
Pre-Tax Margin - 3 Yr. Avg. -23.1%
Net Profit Margin -36.1%
Net Profit Margin - 3 Yr. Avg. -13.2%
Effective Tax Rate 36.8%
Eff/ Tax Rate - 3 Yr. Avg. -49.7%
Payout Ratio -8.6%

COG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the COG stock intrinsic value calculation we used $1156 million for the last fiscal year's total revenue generated by Cabot Oil&Gas. The default revenue input number comes from 2016 income statement of Cabot Oil&Gas. 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 COG stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.9%, whose default value for COG is calculated based on our internal credit rating of Cabot Oil&Gas, 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 Cabot Oil&Gas.
    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 COG stock the variable cost ratio is equal to 106.7%.

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 COG 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 4.9% for Cabot Oil&Gas.

Corporate tax rate of 27% is the nominal tax rate for Cabot Oil&Gas. 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 COG 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 COG are equal to 399.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Cabot Oil&Gas 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 COG is equal to -3.5%. 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 - $2568 million for Cabot Oil&Gas - 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 459.531 million for Cabot Oil&Gas 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 Cabot Oil&Gas at the current share price and the inputted number of shares is $11.5 billion.

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Stock chart of COG Financial statements of COG Annual reports of COG
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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