Intrinsic value of ConocoPhillips - COP

Previous Close

$51.69

  Intrinsic Value

$7.19

stock screener

  Rating & Target

str. sell

-86%

Previous close

$51.69

 
Intrinsic value

$7.19

 
Up/down potential

-86%

 
Rating

str. sell

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 62.9

 

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, %
  -18.02
  22.50
  20.75
  19.18
  17.76
  16.48
  15.33
  14.30
  13.37
  12.53
  11.78
  11.10
  10.49
  9.94
  9.45
  9.00
  8.60
  8.24
  7.92
  7.63
  7.36
  7.13
  6.91
  6.72
  6.55
  6.40
  6.26
  6.13
  6.02
  5.92
  5.82
Revenue, $m
  24,147
  29,580
  35,718
  42,567
  50,126
  58,387
  67,340
  76,970
  87,261
  98,197
  109,765
  121,951
  134,746
  148,143
  162,140
  176,738
  191,943
  207,764
  224,216
  241,316
  259,087
  277,553
  296,746
  316,697
  337,444
  359,026
  381,488
  404,876
  429,240
  454,633
  481,112
Variable operating expenses, $m
 
  36,679
  44,290
  52,783
  62,156
  72,400
  83,502
  95,443
  108,204
  121,765
  136,109
  151,219
  167,085
  183,697
  201,053
  219,155
  238,009
  257,628
  278,028
  299,232
  321,268
  344,166
  367,965
  392,704
  418,430
  445,193
  473,046
  502,046
  532,258
  563,745
  596,579
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
  36,679
  44,290
  52,783
  62,156
  72,400
  83,502
  95,443
  108,204
  121,765
  136,109
  151,219
  167,085
  183,697
  201,053
  219,155
  238,009
  257,628
  278,028
  299,232
  321,268
  344,166
  367,965
  392,704
  418,430
  445,193
  473,046
  502,046
  532,258
  563,745
  596,579
Operating income, $m
  -4,318
  -7,099
  -8,572
  -10,216
  -12,030
  -14,013
  -16,162
  -18,473
  -20,943
  -23,567
  -26,344
  -29,268
  -32,339
  -35,554
  -38,914
  -42,417
  -46,066
  -49,863
  -53,812
  -57,916
  -62,181
  -66,613
  -71,219
  -76,007
  -80,987
  -86,166
  -91,557
  -97,170
  -103,018
  -109,112
  -115,467
EBITDA, $m
  4,744
  3,978
  4,804
  5,725
  6,742
  7,853
  9,057
  10,352
  11,736
  13,207
  14,763
  16,402
  18,122
  19,924
  21,807
  23,770
  25,815
  27,943
  30,155
  32,455
  34,845
  37,329
  39,910
  42,593
  45,384
  48,286
  51,307
  54,453
  57,730
  61,145
  64,706
Interest expense (income), $m
  1,151
  1,152
  1,690
  2,291
  2,963
  3,704
  4,514
  5,392
  6,336
  7,346
  8,418
  9,552
  10,747
  12,002
  13,315
  14,688
  16,119
  17,610
  19,162
  20,775
  22,452
  24,194
  26,005
  27,887
  29,843
  31,878
  33,994
  36,197
  38,490
  40,879
  43,369
Earnings before tax, $m
  -5,530
  -8,251
  -10,262
  -12,507
  -14,993
  -17,717
  -20,676
  -23,865
  -27,279
  -30,913
  -34,762
  -38,820
  -43,086
  -47,556
  -52,229
  -57,105
  -62,186
  -67,474
  -72,974
  -78,691
  -84,633
  -90,807
  -97,224
  -103,894
  -110,830
  -118,044
  -125,551
  -133,367
  -141,508
  -149,991
  -158,836
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
  -8,251
  -10,262
  -12,507
  -14,993
  -17,717
  -20,676
  -23,865
  -27,279
  -30,913
  -34,762
  -38,820
  -43,086
  -47,556
  -52,229
  -57,105
  -62,186
  -67,474
  -72,974
  -78,691
  -84,633
  -90,807
  -97,224
  -103,894
  -110,830
  -118,044
  -125,551
  -133,367
  -141,508
  -149,991
  -158,836

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
  105,643
  127,564
  152,024
  179,020
  208,526
  240,500
  274,892
  311,646
  350,705
  392,018
  435,539
  481,235
  529,081
  579,070
  631,207
  685,510
  742,015
  800,772
  861,844
  925,310
  991,262
  1,059,806
  1,131,061
  1,205,157
  1,282,237
  1,362,458
  1,445,986
  1,533,000
  1,623,690
  1,718,259
Adjusted assets (=assets-cash), $m
  86,112
  105,643
  127,564
  152,024
  179,020
  208,526
  240,500
  274,892
  311,646
  350,705
  392,018
  435,539
  481,235
  529,081
  579,070
  631,207
  685,510
  742,015
  800,772
  861,844
  925,310
  991,262
  1,059,806
  1,131,061
  1,205,157
  1,282,237
  1,362,458
  1,445,986
  1,533,000
  1,623,690
  1,718,259
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
  76,435
  92,295
  109,993
  129,525
  150,873
  174,007
  198,890
  225,482
  253,742
  283,633
  315,121
  348,183
  382,801
  418,969
  456,691
  495,980
  536,863
  579,374
  623,561
  669,480
  717,198
  766,791
  818,345
  871,955
  927,724
  985,766
  1,046,200
  1,109,156
  1,174,773
  1,243,194
Working capital, $m
  1,700
  -1,065
  -1,286
  -1,532
  -1,805
  -2,102
  -2,424
  -2,771
  -3,141
  -3,535
  -3,952
  -4,390
  -4,851
  -5,333
  -5,837
  -6,363
  -6,910
  -7,480
  -8,072
  -8,687
  -9,327
  -9,992
  -10,683
  -11,401
  -12,148
  -12,925
  -13,734
  -14,576
  -15,453
  -16,367
  -17,320
Total debt, $m
  27,275
  38,398
  52,077
  67,340
  84,186
  102,597
  122,549
  144,010
  166,944
  191,317
  217,096
  244,253
  272,767
  302,624
  333,817
  366,350
  400,235
  435,494
  472,158
  510,267
  549,870
  591,025
  633,796
  678,259
  724,495
  772,593
  822,651
  874,772
  929,069
  985,660
  1,044,670
Total liabilities, $m
  54,798
  65,921
  79,600
  94,863
  111,709
  130,120
  150,072
  171,533
  194,467
  218,840
  244,619
  271,776
  300,290
  330,147
  361,340
  393,873
  427,758
  463,017
  499,681
  537,790
  577,393
  618,548
  661,319
  705,782
  752,018
  800,116
  850,174
  902,295
  956,592
  1,013,183
  1,072,193
Total equity, $m
  34,974
  39,722
  47,964
  57,161
  67,312
  78,406
  90,428
  103,360
  117,179
  131,865
  147,399
  163,763
  180,944
  198,935
  217,730
  237,334
  257,752
  278,998
  301,090
  324,053
  347,916
  372,715
  398,487
  425,279
  453,139
  482,121
  512,284
  543,691
  576,408
  610,508
  646,065
Total liabilities and equity, $m
  89,772
  105,643
  127,564
  152,024
  179,021
  208,526
  240,500
  274,893
  311,646
  350,705
  392,018
  435,539
  481,234
  529,082
  579,070
  631,207
  685,510
  742,015
  800,771
  861,843
  925,309
  991,263
  1,059,806
  1,131,061
  1,205,157
  1,282,237
  1,362,458
  1,445,986
  1,533,000
  1,623,691
  1,718,258
Debt-to-equity ratio
  0.780
  0.970
  1.090
  1.180
  1.250
  1.310
  1.360
  1.390
  1.420
  1.450
  1.470
  1.490
  1.510
  1.520
  1.530
  1.540
  1.550
  1.560
  1.570
  1.570
  1.580
  1.590
  1.590
  1.590
  1.600
  1.600
  1.610
  1.610
  1.610
  1.610
  1.620
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
  -8,251
  -10,262
  -12,507
  -14,993
  -17,717
  -20,676
  -23,865
  -27,279
  -30,913
  -34,762
  -38,820
  -43,086
  -47,556
  -52,229
  -57,105
  -62,186
  -67,474
  -72,974
  -78,691
  -84,633
  -90,807
  -97,224
  -103,894
  -110,830
  -118,044
  -125,551
  -133,367
  -141,508
  -149,991
  -158,836
Depreciation, amort., depletion, $m
  9,062
  11,078
  13,376
  15,941
  18,772
  21,866
  25,218
  28,825
  32,679
  36,774
  41,106
  45,670
  50,461
  55,478
  60,720
  66,187
  71,881
  77,806
  83,967
  90,371
  97,026
  103,942
  111,129
  118,601
  126,370
  134,453
  142,865
  151,623
  160,747
  170,257
  180,173
Funds from operations, $m
  3,922
  2,826
  3,114
  3,434
  3,779
  4,148
  4,542
  4,960
  5,400
  5,861
  6,345
  6,849
  7,375
  7,922
  8,491
  9,082
  9,696
  10,332
  10,994
  11,680
  12,394
  13,135
  13,905
  14,706
  15,540
  16,409
  17,313
  18,256
  19,240
  20,266
  21,337
Change in working capital, $m
  -481
  -196
  -221
  -247
  -272
  -297
  -322
  -347
  -370
  -394
  -416
  -439
  -461
  -482
  -504
  -526
  -547
  -570
  -592
  -616
  -640
  -665
  -691
  -718
  -747
  -777
  -809
  -842
  -877
  -914
  -953
Cash from operations, $m
  4,403
  3,022
  3,335
  3,680
  4,051
  4,446
  4,865
  5,306
  5,770
  6,255
  6,761
  7,288
  7,836
  8,405
  8,995
  9,608
  10,243
  10,902
  11,586
  12,296
  13,033
  13,799
  14,596
  15,425
  16,287
  17,186
  18,122
  19,098
  20,117
  21,180
  22,290
Maintenance CAPEX, $m
  0
  -9,042
  -11,078
  -13,376
  -15,941
  -18,772
  -21,866
  -25,218
  -28,825
  -32,679
  -36,774
  -41,106
  -45,670
  -50,461
  -55,478
  -60,720
  -66,187
  -71,881
  -77,806
  -83,967
  -90,371
  -97,026
  -103,942
  -111,129
  -118,601
  -126,370
  -134,453
  -142,865
  -151,623
  -160,747
  -170,257
New CAPEX, $m
  -4,869
  -14,046
  -15,860
  -17,698
  -19,532
  -21,348
  -23,134
  -24,883
  -26,592
  -28,260
  -29,890
  -31,489
  -33,062
  -34,618
  -36,168
  -37,722
  -39,290
  -40,883
  -42,512
  -44,187
  -45,919
  -47,718
  -49,593
  -51,554
  -53,610
  -55,769
  -58,041
  -60,434
  -62,956
  -65,616
  -68,422
Cash from investing activities, $m
  -3,859
  -23,088
  -26,938
  -31,074
  -35,473
  -40,120
  -45,000
  -50,101
  -55,417
  -60,939
  -66,664
  -72,595
  -78,732
  -85,079
  -91,646
  -98,442
  -105,477
  -112,764
  -120,318
  -128,154
  -136,290
  -144,744
  -153,535
  -162,683
  -172,211
  -182,139
  -192,494
  -203,299
  -214,579
  -226,363
  -238,679
Free cash flow, $m
  544
  -20,067
  -23,603
  -27,394
  -31,422
  -35,674
  -40,135
  -44,795
  -49,647
  -54,684
  -59,904
  -65,307
  -70,896
  -76,675
  -82,651
  -88,834
  -95,234
  -101,862
  -108,732
  -115,858
  -123,257
  -130,944
  -138,939
  -147,258
  -155,923
  -164,954
  -174,372
  -184,201
  -194,463
  -205,183
  -216,388
Issuance/(repayment) of debt, $m
  2,343
  12,212
  13,679
  15,263
  16,845
  18,412
  19,952
  21,461
  22,934
  24,373
  25,779
  27,157
  28,514
  29,856
  31,193
  32,533
  33,885
  35,259
  36,664
  38,109
  39,603
  41,154
  42,772
  44,463
  46,236
  48,098
  50,058
  52,122
  54,297
  56,591
  59,011
Issuance/(repurchase) of shares, $m
  -189
  15,570
  18,504
  21,705
  25,144
  28,811
  32,698
  36,796
  41,098
  45,599
  50,295
  55,184
  60,268
  65,546
  71,025
  76,708
  82,604
  88,720
  95,066
  101,654
  108,496
  115,605
  122,997
  130,686
  138,690
  147,026
  155,714
  164,773
  174,225
  184,091
  194,394
Cash from financing (excl. dividends), $m  
  2,017
  27,782
  32,183
  36,968
  41,989
  47,223
  52,650
  58,257
  64,032
  69,972
  76,074
  82,341
  88,782
  95,402
  102,218
  109,241
  116,489
  123,979
  131,730
  139,763
  148,099
  156,759
  165,769
  175,149
  184,926
  195,124
  205,772
  216,895
  228,522
  240,682
  253,405
Total cash flow (excl. dividends), $m
  2,495
  7,716
  8,580
  9,574
  10,567
  11,549
  12,515
  13,462
  14,386
  15,288
  16,170
  17,035
  17,886
  18,728
  19,567
  20,407
  21,255
  22,117
  22,998
  23,905
  24,842
  25,815
  26,829
  27,890
  29,002
  30,171
  31,400
  32,694
  34,059
  35,498
  37,016
Retained Cash Flow (-), $m
  4,788
  -15,570
  -18,504
  -21,705
  -25,144
  -28,811
  -32,698
  -36,796
  -41,098
  -45,599
  -50,295
  -55,184
  -60,268
  -65,546
  -71,025
  -76,708
  -82,604
  -88,720
  -95,066
  -101,654
  -108,496
  -115,605
  -122,997
  -130,686
  -138,690
  -147,026
  -155,714
  -164,773
  -174,225
  -184,091
  -194,394
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
 
  -5,283
  -9,924
  -12,130
  -14,577
  -17,262
  -20,183
  -23,335
  -26,712
  -30,311
  -34,125
  -38,149
  -42,382
  -46,818
  -51,458
  -56,301
  -61,348
  -66,603
  -72,068
  -77,749
  -83,654
  -89,790
  -96,167
  -102,796
  -109,688
  -116,856
  -124,314
  -132,079
  -140,166
  -148,593
  -157,378
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
 
  -4,938
  -8,611
  -9,705
  -10,674
  -11,476
  -12,078
  -12,457
  -12,599
  -12,500
  -12,172
  -11,632
  -10,911
  -10,043
  -9,070
  -8,035
  -6,978
  -5,938
  -4,949
  -4,037
  -3,220
  -2,509
  -1,909
  -1,416
  -1,024
  -720
  -493
  -327
  -211
  -131
  -79
Current shareholders' claim on cash, %
  100
  78.9
  62.7
  50.1
  40.2
  32.5
  26.4
  21.5
  17.6
  14.5
  12.0
  9.9
  8.2
  6.8
  5.7
  4.8
  4.0
  3.4
  2.8
  2.4
  2.0
  1.7
  1.4
  1.2
  1.0
  0.9
  0.7
  0.6
  0.5
  0.4
  0.4

ConocoPhillips is an independent exploration and production company. The Company explores for, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids. The Company operates through five segments: Alaska, Lower 48, Canada, Europe and North Africa, Asia Pacific and Middle East, and Other International. The Alaska segment explores for, produces, transports and markets crude oil, natural gas liquids, natural gas and LNG. The Lower 48 segment consists of operations located in the United States Lower 48 states and the Gulf of Mexico. Its Canadian operations consists of oil sands developments in the Athabasca Region of northeastern Alberta. The Europe and North Africa segment consists of operations and exploration activities in Norway, the United Kingdom and Libya. The Asia Pacific and Middle East segment has exploration and production operations in China, Indonesia, Malaysia and Australia.

FINANCIAL RATIOS  of  ConocoPhillips (COP)

Valuation Ratios
P/E Ratio -17.7
Price to Sales 2.6
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 14.5
Price to Free Cash Flow -137.2
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 22.5% 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 6.9 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 1216.92 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 $62.9 billion.

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COMPANY NEWS

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▶ What to Expect from ConocoPhillips Stock   [07:34AM  Market Realist]
▶ Oil Major: 70% Of Crude Can Be Left In The Ground   [Nov-24-17 01:00PM  Oilprice.com]
▶ Why 2017 Was a Year to Remember for ConocoPhillips   [Nov-22-17 10:34AM  Motley Fool]
▶ How Analysts View ConocoPhillips   [07:33AM  Market Realist]
▶ Oil Prices Stuck Ahead Of OPEC Meeting   [Nov-21-17 03:00PM  Oilprice.com]
▶ Is ConocoPhillipss Dividend Payout Rising?   [02:20PM  Market Realist]
▶ ETFs with exposure to ConocoPhillips : November 20, 2017   [Nov-20-17 12:02PM  Capital Cube]
▶ Gauging Trends in W&T Offshores Revenues   [Nov-17-17 05:25PM  Market Realist]
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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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