Intrinsic value of Calpine - CPN

Previous Close

$14.92

  Intrinsic Value

$16.41

stock screener

  Rating & Target

hold

+10%

  Value-price divergence*

-63%

Previous close

$14.92

 
Intrinsic value

$16.41

 
Up/down potential

+10%

 
Rating

hold

 
Value-price divergence*

-63%

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

We calculate the intrinsic value of CPN 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 5.4

 

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, %
  3.77
  41.20
  37.58
  34.32
  31.39
  28.75
  26.38
  24.24
  22.31
  20.58
  19.02
  17.62
  16.36
  15.22
  14.20
  13.28
  12.45
  11.71
  11.04
  10.43
  9.89
  9.40
  8.96
  8.56
  8.21
  7.89
  7.60
  7.34
  7.11
  6.89
  6.71
Revenue, $m
  6,943
  9,483
  13,047
  17,525
  23,026
  29,646
  37,465
  46,546
  56,932
  68,650
  81,711
  96,110
  111,833
  128,859
  147,159
  166,703
  187,463
  209,411
  232,524
  256,785
  282,181
  308,709
  336,372
  365,182
  395,158
  426,326
  458,721
  492,387
  527,371
  563,730
  601,529
Variable operating expenses, $m
 
  8,280
  11,385
  15,286
  20,079
  25,846
  32,659
  40,570
  49,619
  59,828
  71,206
  83,732
  97,431
  112,264
  128,207
  145,235
  163,321
  182,442
  202,579
  223,715
  245,840
  268,952
  293,053
  318,152
  344,267
  371,422
  399,645
  428,975
  459,454
  491,131
  524,061
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
  5,902
  8,280
  11,385
  15,286
  20,079
  25,846
  32,659
  40,570
  49,619
  59,828
  71,206
  83,732
  97,431
  112,264
  128,207
  145,235
  163,321
  182,442
  202,579
  223,715
  245,840
  268,952
  293,053
  318,152
  344,267
  371,422
  399,645
  428,975
  459,454
  491,131
  524,061
Operating income, $m
  814
  1,203
  1,662
  2,238
  2,947
  3,799
  4,806
  5,976
  7,313
  8,822
  10,504
  12,377
  14,402
  16,595
  18,952
  21,469
  24,142
  26,969
  29,946
  33,070
  36,340
  39,757
  43,319
  47,030
  50,890
  54,904
  59,076
  63,412
  67,917
  72,600
  77,468
EBITDA, $m
  1,724
  2,501
  3,441
  4,622
  6,073
  7,819
  9,881
  12,276
  15,016
  18,107
  21,551
  25,349
  29,496
  33,987
  38,813
  43,968
  49,444
  55,232
  61,329
  67,727
  74,425
  81,422
  88,718
  96,317
  104,223
  112,444
  120,988
  129,867
  139,094
  148,684
  158,654
Interest expense (income), $m
  584
  574
  886
  1,289
  1,795
  2,417
  3,166
  4,049
  5,076
  6,250
  7,575
  9,051
  10,679
  12,456
  14,381
  16,450
  18,659
  21,006
  23,487
  26,100
  28,843
  31,714
  34,712
  37,840
  41,096
  44,485
  48,008
  51,671
  55,476
  59,431
  63,541
Earnings before tax, $m
  159
  629
  775
  949
  1,151
  1,382
  1,641
  1,926
  2,237
  2,572
  2,930
  3,326
  3,723
  4,139
  4,571
  5,019
  5,483
  5,963
  6,458
  6,970
  7,498
  8,043
  8,607
  9,190
  9,794
  10,419
  11,068
  11,741
  12,441
  13,169
  13,926
Tax expense, $m
  48
  170
  209
  256
  311
  373
  443
  520
  604
  695
  791
  898
  1,005
  1,117
  1,234
  1,355
  1,480
  1,610
  1,744
  1,882
  2,024
  2,172
  2,324
  2,481
  2,644
  2,813
  2,988
  3,170
  3,359
  3,556
  3,760
Net income, $m
  92
  459
  566
  693
  840
  1,009
  1,198
  1,406
  1,633
  1,878
  2,139
  2,428
  2,718
  3,021
  3,337
  3,664
  4,003
  4,353
  4,715
  5,088
  5,473
  5,872
  6,283
  6,709
  7,149
  7,606
  8,079
  8,571
  9,082
  9,613
  10,166

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  418
  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
  19,317
  26,940
  37,064
  49,786
  65,413
  84,220
  106,434
  132,232
  161,738
  195,029
  232,132
  273,039
  317,708
  366,076
  418,064
  473,589
  532,566
  594,919
  660,581
  729,502
  801,650
  877,014
  955,603
  1,037,449
  1,122,607
  1,211,153
  1,303,186
  1,398,826
  1,498,213
  1,601,507
  1,708,889
Adjusted assets (=assets-cash), $m
  18,899
  26,940
  37,064
  49,786
  65,413
  84,220
  106,434
  132,232
  161,738
  195,029
  232,132
  273,039
  317,708
  366,076
  418,064
  473,589
  532,566
  594,919
  660,581
  729,502
  801,650
  877,014
  955,603
  1,037,449
  1,122,607
  1,211,153
  1,303,186
  1,398,826
  1,498,213
  1,601,507
  1,708,889
Revenue / Adjusted assets
  0.367
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
  0.352
Average production assets, $m
  13,508
  19,070
  26,237
  35,242
  46,304
  59,617
  75,342
  93,603
  114,490
  138,055
  164,320
  193,277
  224,897
  259,135
  295,936
  335,240
  376,989
  421,126
  467,607
  516,394
  567,466
  620,814
  676,445
  734,381
  794,662
  857,341
  922,489
  990,190
  1,060,543
  1,133,662
  1,209,675
Working capital, $m
  730
  1,498
  2,061
  2,769
  3,638
  4,684
  5,919
  7,354
  8,995
  10,847
  12,910
  15,185
  17,670
  20,360
  23,251
  26,339
  29,619
  33,087
  36,739
  40,572
  44,585
  48,776
  53,147
  57,699
  62,435
  67,359
  72,478
  77,797
  83,325
  89,069
  95,042
Total debt, $m
  12,179
  18,464
  26,856
  37,402
  50,358
  65,949
  84,364
  105,750
  130,211
  157,809
  188,568
  222,479
  259,510
  299,607
  342,705
  388,735
  437,627
  489,318
  543,751
  600,887
  660,698
  723,175
  788,325
  856,175
  926,771
  1,000,176
  1,076,471
  1,155,757
  1,238,148
  1,323,779
  1,412,799
Total liabilities, $m
  16,049
  22,334
  30,726
  41,272
  54,228
  69,819
  88,234
  109,620
  134,081
  161,679
  192,438
  226,349
  263,380
  303,477
  346,575
  392,605
  441,497
  493,188
  547,621
  604,757
  664,568
  727,045
  792,195
  860,045
  930,641
  1,004,046
  1,080,341
  1,159,627
  1,242,018
  1,327,649
  1,416,669
Total equity, $m
  3,268
  4,607
  6,338
  8,513
  11,186
  14,402
  18,200
  22,612
  27,657
  33,350
  39,695
  46,690
  54,328
  62,599
  71,489
  80,984
  91,069
  101,731
  112,959
  124,745
  137,082
  149,969
  163,408
  177,404
  191,966
  207,107
  222,845
  239,199
  256,194
  273,858
  292,220
Total liabilities and equity, $m
  19,317
  26,941
  37,064
  49,785
  65,414
  84,221
  106,434
  132,232
  161,738
  195,029
  232,133
  273,039
  317,708
  366,076
  418,064
  473,589
  532,566
  594,919
  660,580
  729,502
  801,650
  877,014
  955,603
  1,037,449
  1,122,607
  1,211,153
  1,303,186
  1,398,826
  1,498,212
  1,601,507
  1,708,889
Debt-to-equity ratio
  3.727
  4.010
  4.240
  4.390
  4.500
  4.580
  4.640
  4.680
  4.710
  4.730
  4.750
  4.770
  4.780
  4.790
  4.790
  4.800
  4.810
  4.810
  4.810
  4.820
  4.820
  4.820
  4.820
  4.830
  4.830
  4.830
  4.830
  4.830
  4.830
  4.830
  4.830
Adjusted equity ratio
  0.151
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  92
  459
  566
  693
  840
  1,009
  1,198
  1,406
  1,633
  1,878
  2,139
  2,428
  2,718
  3,021
  3,337
  3,664
  4,003
  4,353
  4,715
  5,088
  5,473
  5,872
  6,283
  6,709
  7,149
  7,606
  8,079
  8,571
  9,082
  9,613
  10,166
Depreciation, amort., depletion, $m
  910
  1,299
  1,780
  2,384
  3,126
  4,020
  5,075
  6,301
  7,703
  9,284
  11,047
  12,972
  15,094
  17,392
  19,861
  22,499
  25,301
  28,264
  31,383
  34,657
  38,085
  41,665
  45,399
  49,287
  53,333
  57,540
  61,912
  66,456
  71,177
  76,085
  81,186
Funds from operations, $m
  1,085
  1,758
  2,346
  3,077
  3,967
  5,029
  6,273
  7,707
  9,336
  11,162
  13,185
  15,400
  17,812
  20,413
  23,198
  26,163
  29,304
  32,616
  36,098
  39,745
  43,558
  47,537
  51,682
  55,996
  60,482
  65,146
  69,991
  75,027
  80,259
  85,698
  91,352
Change in working capital, $m
  55
  437
  563
  708
  869
  1,046
  1,235
  1,435
  1,641
  1,851
  2,064
  2,275
  2,484
  2,690
  2,891
  3,088
  3,280
  3,468
  3,652
  3,833
  4,013
  4,191
  4,371
  4,552
  4,736
  4,925
  5,119
  5,319
  5,527
  5,745
  5,972
Cash from operations, $m
  1,030
  1,320
  1,782
  2,369
  3,098
  3,983
  5,037
  6,272
  7,695
  9,310
  11,122
  13,125
  15,327
  17,723
  20,307
  23,075
  26,024
  29,149
  32,446
  35,912
  39,546
  43,346
  47,311
  51,444
  55,746
  60,221
  64,873
  69,708
  74,732
  79,953
  85,380
Maintenance CAPEX, $m
  0
  -907
  -1,280
  -1,761
  -2,365
  -3,108
  -4,001
  -5,056
  -6,282
  -7,684
  -9,265
  -11,028
  -12,972
  -15,094
  -17,392
  -19,861
  -22,499
  -25,301
  -28,264
  -31,383
  -34,657
  -38,085
  -41,665
  -45,399
  -49,287
  -53,333
  -57,540
  -61,912
  -66,456
  -71,177
  -76,085
New CAPEX, $m
  -489
  -5,562
  -7,167
  -9,005
  -11,062
  -13,313
  -15,724
  -18,261
  -20,887
  -23,565
  -26,265
  -28,957
  -31,620
  -34,238
  -36,801
  -39,304
  -41,748
  -44,138
  -46,480
  -48,787
  -51,072
  -53,348
  -55,631
  -57,937
  -60,281
  -62,679
  -65,148
  -67,701
  -70,353
  -73,119
  -76,013
Cash from investing activities, $m
  -1,919
  -6,469
  -8,447
  -10,766
  -13,427
  -16,421
  -19,725
  -23,317
  -27,169
  -31,249
  -35,530
  -39,985
  -44,592
  -49,332
  -54,193
  -59,165
  -64,247
  -69,439
  -74,744
  -80,170
  -85,729
  -91,433
  -97,296
  -103,336
  -109,568
  -116,012
  -122,688
  -129,613
  -136,809
  -144,296
  -152,098
Free cash flow, $m
  -889
  -5,149
  -6,664
  -8,397
  -10,330
  -12,438
  -14,688
  -17,046
  -19,474
  -21,939
  -24,408
  -26,860
  -29,264
  -31,609
  -33,886
  -36,091
  -38,224
  -40,290
  -42,298
  -44,258
  -46,183
  -48,087
  -49,985
  -51,891
  -53,822
  -55,791
  -57,814
  -59,905
  -62,077
  -64,344
  -66,717
Issuance/(repayment) of debt, $m
  469
  6,508
  8,393
  10,546
  12,955
  15,591
  18,415
  21,386
  24,461
  27,598
  30,759
  33,912
  37,031
  40,097
  43,098
  46,030
  48,892
  51,690
  54,434
  57,136
  59,811
  62,477
  65,150
  67,850
  70,596
  73,405
  76,295
  79,285
  82,392
  85,631
  89,020
Issuance/(repurchase) of shares, $m
  1
  880
  1,165
  1,483
  1,832
  2,207
  2,601
  3,005
  3,412
  3,815
  4,206
  4,567
  4,920
  5,250
  5,553
  5,831
  6,082
  6,309
  6,514
  6,698
  6,864
  7,016
  7,156
  7,287
  7,413
  7,535
  7,658
  7,783
  7,913
  8,050
  8,196
Cash from financing (excl. dividends), $m  
  401
  7,388
  9,558
  12,029
  14,787
  17,798
  21,016
  24,391
  27,873
  31,413
  34,965
  38,479
  41,951
  45,347
  48,651
  51,861
  54,974
  57,999
  60,948
  63,834
  66,675
  69,493
  72,306
  75,137
  78,009
  80,940
  83,953
  87,068
  90,305
  93,681
  97,216
Total cash flow (excl. dividends), $m
  -488
  2,239
  2,894
  3,632
  4,457
  5,360
  6,328
  7,346
  8,399
  9,474
  10,557
  11,618
  12,687
  13,737
  14,766
  15,770
  16,751
  17,709
  18,649
  19,575
  20,492
  21,405
  22,321
  23,246
  24,187
  25,149
  26,139
  27,164
  28,228
  29,338
  30,499
Retained Cash Flow (-), $m
  -159
  -1,339
  -1,731
  -2,175
  -2,672
  -3,216
  -3,799
  -4,411
  -5,046
  -5,693
  -6,345
  -6,995
  -7,638
  -8,271
  -8,890
  -9,495
  -10,085
  -10,662
  -11,228
  -11,786
  -12,337
  -12,887
  -13,439
  -13,996
  -14,562
  -15,141
  -15,738
  -16,354
  -16,995
  -17,663
  -18,362
Prev. year cash balance 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
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
 
  900
  1,163
  1,456
  1,785
  2,144
  2,529
  2,934
  3,354
  3,781
  4,212
  4,623
  5,049
  5,467
  5,876
  6,275
  6,666
  7,047
  7,421
  7,789
  8,154
  8,518
  8,882
  9,250
  9,625
  10,008
  10,402
  10,809
  11,233
  11,674
  12,136
Discount rate, %
 
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.60
  17.43
  18.31
  19.22
  20.18
  21.19
  22.25
  23.36
  24.53
  25.76
  27.05
  28.40
  29.82
  31.31
  32.87
  34.52
  36.24
  38.06
  39.96
  41.96
  44.05
  46.26
  48.57
PV of cash for distribution, $m
 
  805
  921
  1,009
  1,070
  1,097
  1,090
  1,050
  981
  890
  784
  668
  556
  449
  353
  269
  199
  143
  100
  67
  44
  28
  17
  10
  6
  3
  2
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  85.9
  74.4
  65.2
  57.6
  51.4
  46.3
  42.1
  38.6
  35.6
  33.0
  30.9
  29.0
  27.4
  26.0
  24.8
  23.7
  22.7
  21.9
  21.1
  20.4
  19.8
  19.3
  18.7
  18.3
  17.8
  17.5
  17.1
  16.8
  16.4
  16.1

Calpine Corporation, a wholesale power generation company, owns and operates natural gas-fired and geothermal power plants in North America. It operates natural gas-fired combustion turbines and renewable geothermal conventional steam turbines. The company sells power, steam, capacity, renewable energy credits, and ancillary services to utilities, independent electric system operators, industrial and agricultural companies, retail power providers, municipalities and other governmental entities, and power marketers, as well as retail commercial, industrial, and residential customers. As of February 1, 2017, it owned and operated 80 power plants, including 1 under construction with an aggregate generation capacity of 25,908 megawatts and 828 megawatts under construction. The company was founded in 1984 and is based in Houston, Texas.

FINANCIAL RATIOS  of  Calpine (CPN)

Valuation Ratios
P/E Ratio 58.2
Price to Sales 0.8
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 5.2
Price to Free Cash Flow 9.9
Growth Rates
Sales Growth Rate 3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.5%
Cap. Spend. - 3 Yr. Gr. Rate -3.2%
Financial Strength
Quick Ratio 1
Current Ratio 0.6
LT Debt to Equity 349.8%
Total Debt to Equity 372.7%
Interest Coverage 1
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 5.8%
Return On Total Capital 0.6%
Ret/ On T. Cap. - 3 Yr. Avg. 2.9%
Return On Equity 2.9%
Return On Equity - 3 Yr. Avg. 12.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 24.6%
EBITDA Margin - 3 Yr. Avg. 25.5%
Operating Margin 12.1%
Oper. Margin - 3 Yr. Avg. 15.1%
Pre-Tax Margin 2.4%
Pre-Tax Margin - 3 Yr. Avg. 5.8%
Net Profit Margin 1.4%
Net Profit Margin - 3 Yr. Avg. 5.6%
Effective Tax Rate 30.2%
Eff/ Tax Rate - 3 Yr. Avg. -3.8%
Payout Ratio 0%

CPN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CPN stock intrinsic value calculation we used $6716 million for the last fiscal year's total revenue generated by Calpine. The default revenue input number comes from 2016 income statement of Calpine. 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 CPN stock valuation model: a) initial revenue growth rate of 41.2% 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 11.8%, whose default value for CPN is calculated based on our internal credit rating of Calpine, 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 Calpine.
    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 CPN stock the variable cost ratio is equal to 87.4%.

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 CPN 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 4.8% for Calpine.

Corporate tax rate of 27% is the nominal tax rate for Calpine. 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 CPN 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 CPN are equal to 201.1%.

Life of production assets of 14.9 years is the average useful life of capital assets used in Calpine 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 CPN is equal to 15.8%. 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 - $3268 million for Calpine - 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 359.725 million for Calpine 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 Calpine at the current share price and the inputted number of shares is $5.4 billion.

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PCG PG&E 69.14 116.37  str.buy

COMPANY NEWS

▶ Calpine Winds Down the Party   [12:24PM  Bloomberg]
▶ Major Houston power co. to be sold for $5.6B   [08:40AM  American City Business Journals]
▶ Calpine Confirms Deal to Be Acquired   [07:41AM  Bloomberg Video]
▶ [$$] Energy Capital Partners Is Nearing Deal to Buy Calpine   [12:16AM  The Wall Street Journal]
▶ ETFs with exposure to Calpine Corp. : August 15, 2017   [Aug-15-17 03:50PM  Capital Cube]
▶ Calpine reports 2Q loss   [Jul-28-17 11:35PM  Associated Press]
▶ Major Houston power co. confirms sales talks, reports larger net loss   [09:30AM  American City Business Journals]
▶ PE firm reportedly in talks to buy major Houston power company   [Jul-27-17 10:30AM  American City Business Journals]
▶ [$$] The private equity arms race is hotting up   [Jul-08-17 01:02AM  Financial Times]
▶ 31 Undervalued Stocks   [Jul-06-17 06:00AM  Morningstar]
▶ Why Calpine Corporation's Shares Popped 26% in May   [Jun-13-17 01:33PM  Motley Fool]
▶ Power Producers Would Like You to Take Them Home   [May-22-17 12:27PM  Bloomberg]
▶ The Curious Calculus Of A Calpine Buyout   [May-19-17 11:39AM  Bloomberg]
▶ ETFs with exposure to Calpine Corp. : May 18, 2017   [May-18-17 01:37PM  Capital Cube]
▶ [$$] Noble Group: coal bunkered   [May-15-17 11:45AM  Financial Times]
▶ A Sand-Eradicating Sprayer and Other Gear   [May-12-17 10:50PM  The Wall Street Journal]
▶ Major Houston-based power co. reportedly considers selling itself   [May-11-17 09:05AM  American City Business Journals]
▶ [$$] Power Company Calpine Explores Sale   [07:52AM  The Wall Street Journal]
▶ [$$] Power Company Calpine Explores Sale   [May-10-17 04:01PM  The Wall Street Journal]
▶ ETFs with exposure to Calpine Corp. : May 4, 2017   [May-04-17 03:50PM  Capital Cube]
▶ Calpine reports 1Q loss   [Apr-28-17 06:10AM  Associated Press]
▶ New Strong Sell Stocks for April 17th   [Apr-17-17 10:29AM  Zacks]
▶ Analyst Recommendations and Price Targets for Calpine   [Mar-30-17 07:37AM  Market Realist]
▶ How Calpine Stock Is Valued Compared to Its Peers   [Mar-29-17 02:35PM  Market Realist]
▶ How Has Calpine Stock Performed Recently?   [11:13AM  Market Realist]
▶ Stocks Decline to Their 3-Year Lows   [Mar-19-17 01:40PM  GuruFocus.com]
▶ Morningstar Runs the Numbers   [Mar-18-17 06:00AM  Morningstar]
▶ [$$] Calpine Sales Top Views   [12:18PM  at The Wall Street Journal]
Stock chart of CPN Financial statements of CPN
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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