Intrinsic value of ConocoPhillips - COP

Previous Close

$43.69

  Intrinsic Value

$7.04

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

-94%

Previous close

$43.69

 
Intrinsic value

$7.04

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence*

-94%

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

We calculate the intrinsic value of COP 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 54.2

 

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, %
  -18.02
  45.80
  41.72
  38.05
  34.74
  31.77
  29.09
  26.68
  24.51
  22.56
  20.81
  19.23
  17.80
  16.52
  15.37
  14.33
  13.40
  12.56
  11.80
  11.12
  10.51
  9.96
  9.46
  9.02
  8.62
  8.25
  7.93
  7.64
  7.37
  7.14
  6.92
Revenue, $m
  24,147
  35,206
  49,894
  68,878
  92,809
  122,293
  157,870
  199,995
  249,022
  305,210
  368,714
  439,603
  517,868
  603,436
  696,189
  795,978
  902,642
  1,016,017
  1,135,951
  1,262,312
  1,395,000
  1,533,946
  1,679,124
  1,830,545
  1,988,266
  2,152,387
  2,323,050
  2,500,441
  2,684,786
  2,876,352
  3,075,446
Variable operating expenses, $m
 
  43,656
  61,869
  85,409
  115,083
  151,643
  195,759
  247,993
  308,788
  378,460
  457,205
  545,108
  642,156
  748,260
  863,274
  987,013
  1,119,276
  1,259,861
  1,408,579
  1,565,267
  1,729,800
  1,902,093
  2,082,113
  2,269,875
  2,465,450
  2,668,959
  2,880,582
  3,100,547
  3,329,135
  3,566,677
  3,813,553
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
  28,465
  43,656
  61,869
  85,409
  115,083
  151,643
  195,759
  247,993
  308,788
  378,460
  457,205
  545,108
  642,156
  748,260
  863,274
  987,013
  1,119,276
  1,259,861
  1,408,579
  1,565,267
  1,729,800
  1,902,093
  2,082,113
  2,269,875
  2,465,450
  2,668,959
  2,880,582
  3,100,547
  3,329,135
  3,566,677
  3,813,553
Operating income, $m
  -4,318
  -8,450
  -11,975
  -16,531
  -22,274
  -29,350
  -37,889
  -47,999
  -59,765
  -73,250
  -88,491
  -105,505
  -124,288
  -144,825
  -167,085
  -191,035
  -216,634
  -243,844
  -272,628
  -302,955
  -334,800
  -368,147
  -402,990
  -439,331
  -477,184
  -516,573
  -557,532
  -600,106
  -644,349
  -690,325
  -738,107
EBITDA, $m
  4,744
  648
  918
  1,267
  1,708
  2,250
  2,905
  3,680
  4,582
  5,616
  6,784
  8,089
  9,529
  11,103
  12,810
  14,646
  16,609
  18,695
  20,901
  23,227
  25,668
  28,225
  30,896
  33,682
  36,584
  39,604
  42,744
  46,008
  49,400
  52,925
  56,588
Interest expense (income), $m
  1,151
  1,152
  2,241
  3,681
  5,543
  7,890
  10,781
  14,269
  18,400
  23,207
  28,717
  34,944
  41,895
  49,570
  57,960
  67,055
  76,840
  87,300
  98,417
  110,177
  122,568
  135,579
  149,203
  163,439
  178,287
  193,753
  209,846
  226,581
  243,975
  262,051
  280,836
Earnings before tax, $m
  -5,530
  -9,602
  -14,216
  -20,212
  -27,817
  -37,240
  -48,670
  -62,268
  -78,165
  -96,458
  -117,208
  -140,449
  -166,183
  -194,394
  -225,045
  -258,090
  -293,474
  -331,144
  -371,045
  -413,132
  -457,368
  -503,726
  -552,193
  -602,770
  -655,471
  -710,325
  -767,378
  -826,686
  -888,324
  -952,376
  -1,018,943
Tax expense, $m
  -1,971
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -3,615
  -9,602
  -14,216
  -20,212
  -27,817
  -37,240
  -48,670
  -62,268
  -78,165
  -96,458
  -117,208
  -140,449
  -166,183
  -194,394
  -225,045
  -258,090
  -293,474
  -331,144
  -371,045
  -413,132
  -457,368
  -503,726
  -552,193
  -602,770
  -655,471
  -710,325
  -767,378
  -826,686
  -888,324
  -952,376
  -1,018,943

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,660
  0
  0
  0
  0
  0
  0
  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
  89,772
  125,737
  178,194
  245,994
  331,460
  436,761
  563,823
  714,267
  889,366
  1,090,034
  1,316,835
  1,570,011
  1,849,527
  2,155,127
  2,486,388
  2,842,780
  3,223,722
  3,628,632
  4,056,966
  4,508,258
  4,982,142
  5,478,380
  5,996,870
  6,537,659
  7,100,949
  7,687,095
  8,296,607
  8,930,146
  9,588,522
  10,272,687
  10,983,735
Adjusted assets (=assets-cash), $m
  86,112
  125,737
  178,194
  245,994
  331,460
  436,761
  563,823
  714,267
  889,366
  1,090,034
  1,316,835
  1,570,011
  1,849,527
  2,155,127
  2,486,388
  2,842,780
  3,223,722
  3,628,632
  4,056,966
  4,508,258
  4,982,142
  5,478,380
  5,996,870
  6,537,659
  7,100,949
  7,687,095
  8,296,607
  8,930,146
  9,588,522
  10,272,687
  10,983,735
Revenue / Adjusted assets
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
Average production assets, $m
  62,389
  90,973
  128,927
  177,981
  239,818
  316,005
  407,937
  516,786
  643,474
  788,662
  952,757
  1,135,934
  1,338,170
  1,559,277
  1,798,951
  2,056,808
  2,332,428
  2,625,388
  2,935,296
  3,261,815
  3,604,679
  3,963,717
  4,338,855
  4,730,127
  5,137,679
  5,561,767
  6,002,761
  6,461,139
  6,937,487
  7,432,495
  7,946,952
Working capital, $m
  1,700
  -1,267
  -1,796
  -2,480
  -3,341
  -4,403
  -5,683
  -7,200
  -8,965
  -10,988
  -13,274
  -15,826
  -18,643
  -21,724
  -25,063
  -28,655
  -32,495
  -36,577
  -40,894
  -45,443
  -50,220
  -55,222
  -60,448
  -65,900
  -71,578
  -77,486
  -83,630
  -90,016
  -96,652
  -103,549
  -110,716
Total debt, $m
  27,275
  50,937
  83,670
  125,977
  179,308
  245,016
  324,303
  418,180
  527,441
  652,658
  794,182
  952,164
  1,126,582
  1,317,276
  1,523,983
  1,746,371
  1,984,080
  2,236,743
  2,504,024
  2,785,630
  3,081,334
  3,390,986
  3,714,524
  4,051,977
  4,403,469
  4,769,224
  5,149,560
  5,544,888
  5,955,714
  6,382,634
  6,826,328
Total liabilities, $m
  54,798
  78,460
  111,193
  153,500
  206,831
  272,539
  351,826
  445,703
  554,964
  680,181
  821,705
  979,687
  1,154,105
  1,344,799
  1,551,506
  1,773,894
  2,011,603
  2,264,266
  2,531,547
  2,813,153
  3,108,857
  3,418,509
  3,742,047
  4,079,500
  4,430,992
  4,796,747
  5,177,083
  5,572,411
  5,983,237
  6,410,157
  6,853,851
Total equity, $m
  34,974
  47,277
  67,001
  92,494
  124,629
  164,222
  211,998
  268,564
  334,402
  409,853
  495,130
  590,324
  695,422
  810,328
  934,882
  1,068,885
  1,212,120
  1,364,366
  1,525,419
  1,695,105
  1,873,285
  2,059,871
  2,254,823
  2,458,160
  2,669,957
  2,890,348
  3,119,524
  3,357,735
  3,605,284
  3,862,530
  4,129,884
Total liabilities and equity, $m
  89,772
  125,737
  178,194
  245,994
  331,460
  436,761
  563,824
  714,267
  889,366
  1,090,034
  1,316,835
  1,570,011
  1,849,527
  2,155,127
  2,486,388
  2,842,779
  3,223,723
  3,628,632
  4,056,966
  4,508,258
  4,982,142
  5,478,380
  5,996,870
  6,537,660
  7,100,949
  7,687,095
  8,296,607
  8,930,146
  9,588,521
  10,272,687
  10,983,735
Debt-to-equity ratio
  0.780
  1.080
  1.250
  1.360
  1.440
  1.490
  1.530
  1.560
  1.580
  1.590
  1.600
  1.610
  1.620
  1.630
  1.630
  1.630
  1.640
  1.640
  1.640
  1.640
  1.640
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
Adjusted equity ratio
  0.364
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3,615
  -9,602
  -14,216
  -20,212
  -27,817
  -37,240
  -48,670
  -62,268
  -78,165
  -96,458
  -117,208
  -140,449
  -166,183
  -194,394
  -225,045
  -258,090
  -293,474
  -331,144
  -371,045
  -413,132
  -457,368
  -503,726
  -552,193
  -602,770
  -655,471
  -710,325
  -767,378
  -826,686
  -888,324
  -952,376
  -1,018,943
Depreciation, amort., depletion, $m
  9,062
  9,097
  12,893
  17,798
  23,982
  31,601
  40,794
  51,679
  64,347
  78,866
  95,276
  113,593
  133,817
  155,928
  179,895
  205,681
  233,243
  262,539
  293,530
  326,181
  360,468
  396,372
  433,886
  473,013
  513,768
  556,177
  600,276
  646,114
  693,749
  743,249
  794,695
Funds from operations, $m
  3,922
  -504
  -1,323
  -2,414
  -3,835
  -5,639
  -7,876
  -10,589
  -13,818
  -17,592
  -21,933
  -26,855
  -32,366
  -38,466
  -45,150
  -52,409
  -60,232
  -68,605
  -77,515
  -86,951
  -96,900
  -107,354
  -118,308
  -129,757
  -141,703
  -154,149
  -167,102
  -180,573
  -194,575
  -209,127
  -224,248
Change in working capital, $m
  -481
  -398
  -529
  -683
  -861
  -1,061
  -1,281
  -1,516
  -1,765
  -2,023
  -2,286
  -2,552
  -2,818
  -3,080
  -3,339
  -3,592
  -3,840
  -4,081
  -4,318
  -4,549
  -4,777
  -5,002
  -5,226
  -5,451
  -5,678
  -5,908
  -6,144
  -6,386
  -6,636
  -6,896
  -7,167
Cash from operations, $m
  4,403
  -106
  -794
  -1,731
  -2,974
  -4,578
  -6,595
  -9,073
  -12,053
  -15,569
  -19,646
  -24,303
  -29,549
  -35,386
  -41,811
  -48,817
  -56,392
  -64,523
  -73,198
  -82,401
  -92,123
  -102,352
  -113,081
  -124,306
  -136,025
  -148,240
  -160,958
  -174,186
  -187,939
  -202,230
  -217,080
Maintenance CAPEX, $m
  0
  -6,239
  -9,097
  -12,893
  -17,798
  -23,982
  -31,601
  -40,794
  -51,679
  -64,347
  -78,866
  -95,276
  -113,593
  -133,817
  -155,928
  -179,895
  -205,681
  -233,243
  -262,539
  -293,530
  -326,181
  -360,468
  -396,372
  -433,886
  -473,013
  -513,768
  -556,177
  -600,276
  -646,114
  -693,749
  -743,249
New CAPEX, $m
  -4,869
  -28,585
  -37,954
  -49,054
  -61,836
  -76,187
  -91,932
  -108,849
  -126,688
  -145,187
  -164,095
  -183,178
  -202,236
  -221,107
  -239,674
  -257,857
  -275,620
  -292,960
  -309,908
  -326,518
  -342,865
  -359,038
  -375,138
  -391,272
  -407,552
  -424,088
  -440,994
  -458,378
  -476,348
  -495,008
  -514,457
Cash from investing activities, $m
  -3,859
  -34,824
  -47,051
  -61,947
  -79,634
  -100,169
  -123,533
  -149,643
  -178,367
  -209,534
  -242,961
  -278,454
  -315,829
  -354,924
  -395,602
  -437,752
  -481,301
  -526,203
  -572,447
  -620,048
  -669,046
  -719,506
  -771,510
  -825,158
  -880,565
  -937,856
  -997,171
  -1,058,654
  -1,122,462
  -1,188,757
  -1,257,706
Free cash flow, $m
  544
  -34,930
  -47,846
  -63,678
  -82,608
  -104,747
  -130,128
  -158,716
  -190,419
  -225,104
  -262,608
  -302,757
  -345,378
  -390,310
  -437,413
  -486,569
  -537,692
  -590,726
  -645,645
  -702,449
  -761,169
  -821,858
  -884,591
  -949,464
  -1,016,589
  -1,086,096
  -1,158,128
  -1,232,841
  -1,310,401
  -1,390,986
  -1,474,787
Issuance/(repayment) of debt, $m
  2,343
  24,751
  32,733
  42,307
  53,331
  65,708
  79,287
  93,877
  109,262
  125,217
  141,524
  157,982
  174,418
  190,694
  206,707
  222,389
  237,708
  252,664
  267,281
  281,606
  295,704
  309,652
  323,538
  337,453
  351,493
  365,755
  380,335
  395,328
  410,827
  426,919
  443,694
Issuance/(repurchase) of shares, $m
  -189
  24,476
  33,940
  45,705
  59,952
  76,833
  96,445
  118,835
  144,003
  171,909
  202,485
  235,643
  271,282
  309,300
  349,599
  392,093
  436,709
  483,390
  532,099
  582,818
  635,548
  690,311
  747,145
  806,107
  867,268
  930,716
  996,554
  1,064,897
  1,135,873
  1,209,622
  1,286,297
Cash from financing (excl. dividends), $m  
  2,017
  49,227
  66,673
  88,012
  113,283
  142,541
  175,732
  212,712
  253,265
  297,126
  344,009
  393,625
  445,700
  499,994
  556,306
  614,482
  674,417
  736,054
  799,380
  864,424
  931,252
  999,963
  1,070,683
  1,143,560
  1,218,761
  1,296,471
  1,376,889
  1,460,225
  1,546,700
  1,636,541
  1,729,991
Total cash flow (excl. dividends), $m
  2,495
  14,297
  18,828
  24,334
  30,675
  37,794
  45,604
  53,996
  62,845
  72,022
  81,402
  90,868
  100,322
  109,683
  118,893
  127,913
  136,725
  145,327
  153,734
  161,974
  170,083
  178,106
  186,092
  194,096
  202,172
  210,375
  218,761
  227,385
  236,299
  245,555
  255,204
Retained Cash Flow (-), $m
  4,788
  -24,476
  -33,940
  -45,705
  -59,952
  -76,833
  -96,445
  -118,835
  -144,003
  -171,909
  -202,485
  -235,643
  -271,282
  -309,300
  -349,599
  -392,093
  -436,709
  -483,390
  -532,099
  -582,818
  -635,548
  -690,311
  -747,145
  -806,107
  -867,268
  -930,716
  -996,554
  -1,064,897
  -1,135,873
  -1,209,622
  -1,286,297
Prev. year cash balance distribution, $m
 
  2,571
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -7,608
  -15,112
  -21,371
  -29,278
  -39,039
  -50,841
  -64,839
  -81,157
  -99,887
  -121,084
  -144,775
  -170,960
  -199,616
  -230,706
  -264,180
  -299,984
  -338,063
  -378,364
  -420,844
  -465,465
  -512,206
  -561,053
  -612,011
  -665,096
  -720,342
  -777,793
  -837,512
  -899,574
  -964,067
  -1,031,093
Discount rate, %
 
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
 
  -7,110
  -13,114
  -17,099
  -21,438
  -25,953
  -30,425
  -34,614
  -38,277
  -41,194
  -43,188
  -44,143
  -44,011
  -42,820
  -40,666
  -37,702
  -34,121
  -30,142
  -25,983
  -21,849
  -17,914
  -14,313
  -11,137
  -8,433
  -6,209
  -4,440
  -3,082
  -2,074
  -1,351
  -851
  -518
Current shareholders' claim on cash, %
  100
  67.2
  46.0
  31.9
  22.5
  16.1
  11.7
  8.6
  6.4
  4.8
  3.6
  2.8
  2.1
  1.7
  1.3
  1.0
  0.8
  0.6
  0.5
  0.4
  0.3
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.1
  0.1
  0.0

ConocoPhillips explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids worldwide. Its portfolio includes North American tight oil and oil sands assets; lower-risk conventional assets in North America, Europe, Asia, and Australia; various LNG developments; and an inventory of conventional and unconventional exploration prospects. The company was founded in 1917 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  ConocoPhillips (COP)

Valuation Ratios
P/E Ratio -15
Price to Sales 2.2
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 12.3
Price to Free Cash Flow -116
Growth Rates
Sales Growth Rate -18%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -51.6%
Cap. Spend. - 3 Yr. Gr. Rate -20.7%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 74.9%
Total Debt to Equity 78%
Interest Coverage -4
Management Effectiveness
Return On Assets -3.1%
Ret/ On Assets - 3 Yr. Avg. -0.2%
Return On Total Capital -5.7%
Ret/ On T. Cap. - 3 Yr. Avg. -0.9%
Return On Equity -9.7%
Return On Equity - 3 Yr. Avg. -2%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 34.5%
Gross Margin - 3 Yr. Avg. 36.9%
EBITDA Margin 19.4%
EBITDA Margin - 3 Yr. Avg. 21.3%
Operating Margin -17.9%
Oper. Margin - 3 Yr. Avg. -9.3%
Pre-Tax Margin -22.9%
Pre-Tax Margin - 3 Yr. Avg. -9.8%
Net Profit Margin -15%
Net Profit Margin - 3 Yr. Avg. -5.6%
Effective Tax Rate 35.6%
Eff/ Tax Rate - 3 Yr. Avg. 37.8%
Payout Ratio -34.7%

COP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the COP stock intrinsic value calculation we used $24147 million for the last fiscal year's total revenue generated by ConocoPhillips. The default revenue input number comes from 2016 income statement of ConocoPhillips. 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 COP stock valuation model: a) initial revenue growth rate of 45.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7%, whose default value for COP is calculated based on our internal credit rating of ConocoPhillips, 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 ConocoPhillips.
    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 COP stock the variable cost ratio is equal to 124%.

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 COP 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 4.4% for ConocoPhillips.

Corporate tax rate of 27% is the nominal tax rate for ConocoPhillips. 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 COP 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 COP are equal to 258.4%.

Life of production assets of 10 years is the average useful life of capital assets used in ConocoPhillips 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 COP is equal to -3.6%. 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 - $34974 million for ConocoPhillips - 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 1241.39 million for ConocoPhillips 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 ConocoPhillips at the current share price and the inputted number of shares is $54.2 billion.

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COMPANY NEWS

▶ ETFs with exposure to ConocoPhillips : August 16, 2017   [Aug-16-17 05:30PM  Capital Cube]
▶ How Encana Stock Has Performed This Year   [03:25PM  Market Realist]
▶ The Oil Price Tug Of War   [Aug-15-17 04:00PM  Oilprice.com]
▶ How Marathon Oil Stock Performed Last Week   [02:13PM  Market Realist]
▶ ConocoPhillipss Stock Price Forecast for the Week   [Aug-14-17 05:06PM  Market Realist]
▶ 3 Key Takeaways From ConocoPhillips' Q2 2017 Earnings   [Aug-11-17 08:16AM  Motley Fool]
▶ ConocoPhillips: Wall Street Analysts Recent Ratings   [Aug-08-17 01:06PM  Market Realist]
▶ Is The EIA Exaggerating U.S. Oil Production?   [Aug-03-17 07:00PM  Oilprice.com]
▶ Texas energy giant's sale of San Juan assets closes   [05:00PM  American City Business Journals]
▶ Bulls Crushed As Oil Crashes Again   [03:00PM  Oilprice.com]
▶ Analyzing ConocoPhillipss 2Q17 Revenues   [09:11AM  Market Realist]
▶ ConocoPhillips in 3 Charts   [Jul-31-17 08:03PM  Motley Fool]
▶ U.S. Shale Is Determined Not To Kill This Rally   [Jul-30-17 07:00PM  Oilprice.com]
▶ Apache Corporation in 5 Charts   [07:12AM  Motley Fool]
▶ ConocoPhillips reports 2Q loss   [01:32AM  Associated Press]
▶ Conoco Lives The Lower-Forever Life   [09:42AM  Bloomberg]
▶ ConocoPhillips Posts $3.4 Billion Q2 Loss   [09:41AM  TheStreet.com]
▶ ConocoPhillips reports $3.4B loss, makes headway on goals   [09:20AM  American City Business Journals]
▶ Indonesia May Return To OPEC But Wont Cut Production   [Jul-26-17 01:00PM  Oilprice.com]
▶ ConocoPhillips Stock Price Range Forecast for the Week   [Jul-19-17 10:40AM  Market Realist]
▶ Is ConocoPhillips Too Big to Grow?   [Jul-18-17 06:19PM  Motley Fool]
▶ Oil downgrades, financials & retail in the blitz   [Jul-17-17 01:43PM  CNBC Videos]
Stock chart of COP Financial statements of COP
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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