Intrinsic value of Cenovus Energy - CVE

Previous Close

$7.50

  Intrinsic Value

$2.62

stock screener

  Rating & Target

str. sell

-65%

  Value-price divergence*

-36%

Previous close

$7.50

 
Intrinsic value

$2.62

 
Up/down potential

-65%

 
Rating

str. sell

 
Value-price divergence*

-36%

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

We calculate the intrinsic value of CVE 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 6.0

 

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, %
  -7.12
  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
  8,981
  14,370
  22,201
  33,202
  48,174
  67,966
  93,438
  125,421
  164,686
  211,911
  267,661
  332,374
  406,359
  489,800
  582,765
  685,228
  797,084
  918,174
  1,048,302
  1,187,257
  1,334,829
  1,490,827
  1,655,087
  1,827,485
  2,007,942
  2,196,430
  2,392,977
  2,597,662
  2,810,625
  3,032,057
  3,262,208
Variable operating expenses, $m
 
  12,635
  19,511
  29,169
  42,315
  59,693
  82,057
  110,139
  144,613
  186,077
  235,026
  291,827
  356,786
  430,047
  511,671
  601,635
  699,846
  806,164
  920,417
  1,042,420
  1,171,989
  1,308,956
  1,453,178
  1,604,544
  1,762,987
  1,928,481
  2,101,050
  2,280,765
  2,467,748
  2,662,167
  2,864,241
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
  9,234
  12,635
  19,511
  29,169
  42,315
  59,693
  82,057
  110,139
  144,613
  186,077
  235,026
  291,827
  356,786
  430,047
  511,671
  601,635
  699,846
  806,164
  920,417
  1,042,420
  1,171,989
  1,308,956
  1,453,178
  1,604,544
  1,762,987
  1,928,481
  2,101,050
  2,280,765
  2,467,748
  2,662,167
  2,864,241
Operating income, $m
  -253
  1,735
  2,690
  4,032
  5,859
  8,274
  11,381
  15,283
  20,073
  25,834
  32,635
  40,547
  49,573
  59,752
  71,093
  83,593
  97,239
  112,011
  127,886
  144,837
  162,840
  181,871
  201,909
  222,941
  244,955
  267,949
  291,927
  316,897
  342,877
  369,890
  397,967
EBITDA, $m
  856
  3,506
  5,417
  8,102
  11,755
  16,585
  22,800
  30,604
  40,185
  51,709
  65,312
  81,103
  99,156
  119,516
  142,201
  167,203
  194,497
  224,044
  255,797
  289,703
  325,713
  363,778
  403,859
  445,926
  489,959
  535,952
  583,912
  633,857
  685,822
  739,854
  796,013
Interest expense (income), $m
  0
  164
  377
  686
  1,121
  1,712
  2,493
  3,499
  4,761
  6,311
  8,175
  10,376
  12,931
  15,851
  19,145
  22,815
  26,860
  31,276
  36,056
  41,193
  46,678
  52,504
  58,662
  65,146
  71,952
  79,076
  86,516
  94,275
  102,355
  110,762
  119,504
Earnings before tax, $m
  -686
  1,571
  2,313
  3,346
  4,738
  6,562
  8,888
  11,784
  15,312
  19,523
  24,460
  30,171
  36,642
  43,901
  51,948
  60,778
  70,379
  80,735
  91,830
  103,644
  116,162
  129,367
  143,247
  157,794
  173,003
  188,874
  205,410
  222,622
  240,521
  259,128
  278,463
Tax expense, $m
  -283
  424
  625
  903
  1,279
  1,772
  2,400
  3,182
  4,134
  5,271
  6,604
  8,146
  9,893
  11,853
  14,026
  16,410
  19,002
  21,799
  24,794
  27,984
  31,364
  34,929
  38,677
  42,604
  46,711
  50,996
  55,461
  60,108
  64,941
  69,965
  75,185
Net income, $m
  -403
  1,147
  1,689
  2,443
  3,459
  4,790
  6,488
  8,602
  11,177
  14,252
  17,855
  22,025
  26,749
  32,048
  37,922
  44,368
  51,377
  58,937
  67,036
  75,660
  84,798
  94,438
  104,571
  115,190
  126,292
  137,878
  149,950
  162,514
  175,581
  189,163
  203,278

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,753
  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
  18,695
  25,523
  39,433
  58,973
  85,566
  120,722
  165,965
  222,773
  292,515
  376,396
  475,419
  590,363
  721,775
  869,981
  1,035,106
  1,217,101
  1,415,781
  1,630,861
  1,861,993
  2,108,804
  2,370,922
  2,648,005
  2,939,763
  3,245,976
  3,566,504
  3,901,297
  4,250,402
  4,613,965
  4,992,228
  5,385,537
  5,794,330
Adjusted assets (=assets-cash), $m
  15,942
  25,523
  39,433
  58,973
  85,566
  120,722
  165,965
  222,773
  292,515
  376,396
  475,419
  590,363
  721,775
  869,981
  1,035,106
  1,217,101
  1,415,781
  1,630,861
  1,861,993
  2,108,804
  2,370,922
  2,648,005
  2,939,763
  3,245,976
  3,566,504
  3,901,297
  4,250,402
  4,613,965
  4,992,228
  5,385,537
  5,794,330
Revenue / Adjusted assets
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
  0.563
Average production assets, $m
  12,494
  19,988
  30,882
  46,183
  67,010
  94,541
  129,972
  174,461
  229,078
  294,768
  372,316
  462,332
  565,246
  681,311
  810,626
  953,152
  1,108,745
  1,277,181
  1,458,188
  1,651,474
  1,856,747
  2,073,740
  2,302,226
  2,542,031
  2,793,047
  3,055,235
  3,328,630
  3,613,348
  3,909,579
  4,217,591
  4,537,731
Working capital, $m
  3,072
  517
  799
  1,195
  1,734
  2,447
  3,364
  4,515
  5,929
  7,629
  9,636
  11,965
  14,629
  17,633
  20,980
  24,668
  28,695
  33,054
  37,739
  42,741
  48,054
  53,670
  59,583
  65,789
  72,286
  79,071
  86,147
  93,516
  101,182
  109,154
  117,439
Total debt, $m
  4,687
  10,777
  19,610
  32,018
  48,905
  71,228
  99,958
  136,031
  180,317
  233,582
  296,461
  369,450
  452,897
  547,008
  651,862
  767,429
  893,591
  1,030,166
  1,176,936
  1,333,661
  1,500,106
  1,676,053
  1,861,320
  2,055,765
  2,259,300
  2,471,894
  2,693,576
  2,924,438
  3,164,635
  3,414,386
  3,673,969
Total liabilities, $m
  10,116
  16,207
  25,040
  37,448
  54,335
  76,658
  105,388
  141,461
  185,747
  239,012
  301,891
  374,880
  458,327
  552,438
  657,292
  772,859
  899,021
  1,035,596
  1,182,366
  1,339,091
  1,505,536
  1,681,483
  1,866,750
  2,061,195
  2,264,730
  2,477,324
  2,699,006
  2,929,868
  3,170,065
  3,419,816
  3,679,399
Total equity, $m
  8,578
  9,316
  14,393
  21,525
  31,232
  44,063
  60,577
  81,312
  106,768
  137,385
  173,528
  215,482
  263,448
  317,543
  377,814
  444,242
  516,760
  595,264
  679,628
  769,714
  865,387
  966,522
  1,073,014
  1,184,781
  1,301,774
  1,423,973
  1,551,397
  1,684,097
  1,822,163
  1,965,721
  2,114,930
Total liabilities and equity, $m
  18,694
  25,523
  39,433
  58,973
  85,567
  120,721
  165,965
  222,773
  292,515
  376,397
  475,419
  590,362
  721,775
  869,981
  1,035,106
  1,217,101
  1,415,781
  1,630,860
  1,861,994
  2,108,805
  2,370,923
  2,648,005
  2,939,764
  3,245,976
  3,566,504
  3,901,297
  4,250,403
  4,613,965
  4,992,228
  5,385,537
  5,794,329
Debt-to-equity ratio
  0.546
  1.160
  1.360
  1.490
  1.570
  1.620
  1.650
  1.670
  1.690
  1.700
  1.710
  1.710
  1.720
  1.720
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.730
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
  1.740
Adjusted equity ratio
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365
  0.365

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -403
  1,147
  1,689
  2,443
  3,459
  4,790
  6,488
  8,602
  11,177
  14,252
  17,855
  22,025
  26,749
  32,048
  37,922
  44,368
  51,377
  58,937
  67,036
  75,660
  84,798
  94,438
  104,571
  115,190
  126,292
  137,878
  149,950
  162,514
  175,581
  189,163
  203,278
Depreciation, amort., depletion, $m
  1,109
  1,771
  2,727
  4,069
  5,896
  8,311
  11,419
  15,322
  20,113
  25,875
  32,677
  40,555
  49,583
  59,764
  71,108
  83,610
  97,258
  112,033
  127,911
  144,866
  162,873
  181,907
  201,950
  222,985
  245,004
  268,003
  291,985
  316,960
  342,946
  369,964
  398,047
Funds from operations, $m
  221
  2,918
  4,416
  6,512
  9,355
  13,101
  17,907
  23,924
  31,290
  40,126
  50,533
  62,580
  76,332
  91,812
  109,030
  127,978
  148,635
  170,970
  194,947
  220,527
  247,671
  276,345
  306,520
  338,175
  371,296
  405,881
  441,935
  479,474
  518,526
  559,127
  601,325
Change in working capital, $m
  -416
  194
  282
  396
  539
  713
  917
  1,151
  1,414
  1,700
  2,007
  2,330
  2,663
  3,004
  3,347
  3,689
  4,027
  4,359
  4,685
  5,002
  5,313
  5,616
  5,913
  6,206
  6,496
  6,786
  7,076
  7,369
  7,667
  7,972
  8,285
Cash from operations, $m
  637
  2,724
  4,134
  6,116
  8,816
  12,389
  16,990
  22,773
  29,876
  38,426
  48,526
  60,251
  73,668
  88,808
  105,683
  124,289
  144,608
  166,611
  190,262
  215,524
  242,358
  270,729
  300,607
  331,969
  364,800
  399,095
  434,859
  472,106
  510,860
  551,156
  593,039
Maintenance CAPEX, $m
  0
  -1,096
  -1,753
  -2,709
  -4,051
  -5,878
  -8,293
  -11,401
  -15,304
  -20,095
  -25,857
  -32,659
  -40,555
  -49,583
  -59,764
  -71,108
  -83,610
  -97,258
  -112,033
  -127,911
  -144,866
  -162,873
  -181,907
  -201,950
  -222,985
  -245,004
  -268,003
  -291,985
  -316,960
  -342,946
  -369,964
New CAPEX, $m
  -765
  -7,494
  -10,894
  -15,302
  -20,826
  -27,531
  -35,431
  -44,489
  -54,617
  -65,690
  -77,548
  -90,016
  -102,913
  -116,065
  -129,315
  -142,526
  -155,593
  -168,436
  -181,008
  -193,286
  -205,273
  -216,993
  -228,486
  -239,805
  -251,016
  -262,188
  -273,396
  -284,718
  -296,231
  -308,013
  -320,139
Cash from investing activities, $m
  -799
  -8,590
  -12,647
  -18,011
  -24,877
  -33,409
  -43,724
  -55,890
  -69,921
  -85,785
  -103,405
  -122,675
  -143,468
  -165,648
  -189,079
  -213,634
  -239,203
  -265,694
  -293,041
  -321,197
  -350,139
  -379,866
  -410,393
  -441,755
  -474,001
  -507,192
  -541,399
  -576,703
  -613,191
  -650,959
  -690,103
Free cash flow, $m
  -162
  -5,866
  -8,513
  -11,895
  -16,062
  -21,021
  -26,734
  -33,117
  -40,045
  -47,358
  -54,879
  -62,425
  -69,800
  -76,841
  -83,396
  -89,345
  -94,594
  -99,084
  -102,779
  -105,673
  -107,781
  -109,136
  -109,786
  -109,786
  -109,201
  -108,096
  -106,540
  -104,597
  -102,332
  -99,802
  -97,064
Issuance/(repayment) of debt, $m
  0
  6,090
  8,833
  12,407
  16,887
  22,324
  28,729
  36,073
  44,286
  53,264
  62,879
  72,989
  83,447
  94,111
  104,854
  115,567
  126,162
  136,576
  146,769
  156,725
  166,445
  175,948
  185,267
  194,445
  203,535
  212,594
  221,682
  230,862
  240,197
  249,751
  259,584
Issuance/(repurchase) of shares, $m
  0
  2,344
  3,389
  4,689
  6,248
  8,042
  10,025
  12,133
  14,278
  16,365
  18,288
  19,929
  21,217
  22,048
  22,348
  22,060
  21,142
  19,567
  17,328
  14,426
  10,875
  6,697
  1,921
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1
  8,434
  12,222
  17,096
  23,135
  30,366
  38,754
  48,206
  58,564
  69,629
  81,167
  92,918
  104,664
  116,159
  127,202
  137,627
  147,304
  156,143
  164,097
  171,151
  177,320
  182,645
  187,188
  194,445
  203,535
  212,594
  221,682
  230,862
  240,197
  249,751
  259,584
Total cash flow (excl. dividends), $m
  -162
  2,568
  3,708
  5,202
  7,073
  9,344
  12,021
  15,089
  18,520
  22,271
  26,288
  30,494
  34,863
  39,318
  43,807
  48,282
  52,709
  57,060
  61,318
  65,478
  69,538
  73,509
  77,402
  84,659
  94,334
  104,497
  115,142
  126,265
  137,866
  149,948
  162,519
Retained Cash Flow (-), $m
  593
  -3,491
  -5,077
  -7,132
  -9,707
  -12,832
  -16,514
  -20,735
  -25,456
  -30,617
  -36,143
  -41,954
  -47,965
  -54,095
  -60,271
  -66,428
  -72,518
  -78,504
  -84,364
  -90,086
  -95,673
  -101,135
  -106,492
  -111,768
  -116,993
  -122,200
  -127,423
  -132,700
  -138,066
  -143,558
  -149,209
Prev. year cash balance distribution, $m
 
  2,753
  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
 
  1,830
  -1,369
  -1,930
  -2,634
  -3,487
  -4,493
  -5,646
  -6,936
  -8,345
  -9,855
  -11,460
  -13,102
  -14,777
  -16,464
  -18,146
  -19,809
  -21,445
  -23,045
  -24,608
  -26,134
  -27,627
  -29,090
  -27,109
  -22,658
  -17,702
  -12,281
  -6,435
  -200
  6,391
  13,310
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  1,755
  -1,253
  -1,680
  -2,169
  -2,703
  -3,261
  -3,814
  -4,335
  -4,794
  -5,167
  -5,442
  -5,591
  -5,618
  -5,527
  -5,327
  -5,034
  -4,666
  -4,244
  -3,789
  -3,321
  -2,858
  -2,414
  -1,777
  -1,154
  -689
  -358
  -138
  -3
  70
  100
Current shareholders' claim on cash, %
  100
  63.5
  41.8
  28.5
  20.2
  14.7
  11.1
  8.7
  6.9
  5.7
  4.8
  4.1
  3.6
  3.2
  2.9
  2.7
  2.5
  2.4
  2.3
  2.2
  2.2
  2.2
  2.2
  2.2
  2.2
  2.2
  2.2
  2.2
  2.2
  2.2
  2.2

Cenovus Energy Inc. develops, produces, and markets crude oil, natural gas liquids (NGLs), and natural gas in Canada. Its Oil Sands segment develops and produces bitumen assets at Foster Creek, Christina Lake, Narrows Lake, and the Athabasca natural gas assets, as well as projects in the early stages of development, such as Grand Rapids and Telephone Lake. The company’s Conventional segment engages in the development and production of conventional crude oil, NGLs, and natural gas in Alberta and Saskatchewan in Canada, including the heavy oil assets at Pelican Lake. This segment also includes the carbon dioxide enhanced oil recovery project at Weyburn. Its Refining and Marketing segment transports, sells, and refines crude oil into petroleum and chemical products. This segment also owns 50% interest ownership in two refineries in the United States. The company is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Cenovus Energy (CVE)

Valuation Ratios
P/E Ratio -15.5
Price to Sales 0.7
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow -48.8
Growth Rates
Sales Growth Rate -7.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -39.7%
Cap. Spend. - 3 Yr. Gr. Rate -20.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 54.6%
Total Debt to Equity 54.6%
Interest Coverage 0
Management Effectiveness
Return On Assets -2.1%
Ret/ On Assets - 3 Yr. Avg. 1.1%
Return On Total Capital -3%
Ret/ On T. Cap. - 3 Yr. Avg. 1.8%
Return On Equity -4.5%
Return On Equity - 3 Yr. Avg. 2.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 42.4%
Gross Margin - 3 Yr. Avg. 43.3%
EBITDA Margin 4.7%
EBITDA Margin - 3 Yr. Avg. 13.7%
Operating Margin -2.8%
Oper. Margin - 3 Yr. Avg. 5.1%
Pre-Tax Margin -7.6%
Pre-Tax Margin - 3 Yr. Avg. 0.8%
Net Profit Margin -4.5%
Net Profit Margin - 3 Yr. Avg. 1.3%
Effective Tax Rate 41.3%
Eff/ Tax Rate - 3 Yr. Avg. 21.3%
Payout Ratio -30.5%

CVE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CVE stock intrinsic value calculation we used $8981 million for the last fiscal year's total revenue generated by Cenovus Energy. The default revenue input number comes from 2016 income statement of Cenovus Energy. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CVE 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 4.3%, whose default value for CVE is calculated based on our internal credit rating of Cenovus Energy, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Cenovus Energy.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CVE stock the variable cost ratio is equal to 88%.

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 CVE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Cenovus Energy.

Corporate tax rate of 27% is the nominal tax rate for Cenovus Energy. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CVE 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 CVE are equal to 139.1%.

Life of production assets of 11.4 years is the average useful life of capital assets used in Cenovus Energy operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CVE 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 - $8578 million for Cenovus Energy - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 800.784 million for Cenovus Energy is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Cenovus Energy at the current share price and the inputted number of shares is $6.0 billion.

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COMPANY NEWS

▶ The Best Energy Stocks from July 2428, 2017   [08:18AM  Market Realist]
▶ Cenovus beats 2Q profit forecasts   [01:32AM  Associated Press]
▶ 5 Must-See Numbers From ConocoPhillips' Q2 Report   [Jul-27-17 05:17PM  Motley Fool]
▶ 16 Stock Ideas From the Clearance Rack   [06:00AM  Morningstar]
▶ Understanding ConocoPhillipss Production Guidance for 2Q17   [Jul-24-17 05:35PM  Market Realist]
▶ Checking the Forecast for Chevron Stock ahead of Q2 Earnings   [Jul-21-17 09:13AM  Market Realist]
▶ Cenovus releases 2016 corporate responsibility report   [Jul-13-17 07:48PM  GlobeNewswire]
▶ 31 Undervalued Stocks   [06:00AM  Morningstar]
▶ ConocoPhillipss Barnett Divestiture Explained   [Jul-04-17 03:05PM  Market Realist]
▶ Understanding ConocoPhillipss Updated Production Guidance   [Jun-30-17 10:38AM  Market Realist]
▶ Are ConocoPhillipss Debt Reduction Plans on Track?   [Jun-26-17 05:35PM  Market Realist]
▶ DBRS downgrades Cenovus after ConocoPhillips deal   [Jun-23-17 03:35PM  Reuters]
▶ Morningstar Runs the Numbers   [Jun-17-17 06:00AM  Morningstar]
▶ ConocoPhillips' Most Brilliant Moves in 2017 So Far   [Jun-15-17 04:30PM  Motley Fool]
▶ Cenovus to webcast Investor Day 2017   [Jun-13-17 04:30PM  GlobeNewswire]
▶ 3 Reasons ConocoPhillips Stock Could Rise   [10:00AM  Motley Fool]
▶ Why These 5 Oil Companies Fell More Than 10% in May   [Jun-08-17 09:44AM  Motley Fool]
▶ ConocoPhillips: The Bear Case From a Bull   [Jun-06-17 05:13PM  Motley Fool]
▶ New BC Government Could Jeopardize Canadian Oil Exports   [Jun-01-17 06:00PM  Oilprice.com]
▶ Canadian Oil Sands Brace As Oil Majors Dump Shares   [May-30-17 06:00PM  Oilprice.com]
▶ ETFs with exposure to Cenovus Energy, Inc. : May 26, 2017   [May-26-17 01:04PM  Capital Cube]
▶ ConocoPhillips Completes Canadian Divestitures on Schedule   [May-22-17 01:24PM  Market Realist]
▶ Here's Why the Best Is Yet to Come for ConocoPhillips   [May-18-17 02:30PM  Motley Fool]
▶ ETFs with exposure to Cenovus Energy, Inc. : May 11, 2017   [May-11-17 04:28PM  Capital Cube]
▶ Stocks That Fell to 3-Year Lows   [May-05-17 11:18PM  GuruFocus.com]
▶ The Market Is Missing Cenovus' Potential   [May-03-17 07:00AM  Morningstar]
▶ ETFs with exposure to Cenovus Energy, Inc. : May 1, 2017   [May-01-17 03:50PM  Capital Cube]
▶ Canadian Oil Patch Shrugs Off Trumps Trade War Threat   [Apr-30-17 04:00PM  Oilprice.com]
▶ Cenovus posts 1Q profit   [07:44AM  Associated Press]
▶ Cenovus CEO Defends Conoco Deal   [Apr-21-17 06:46PM  Bloomberg]
▶ Why ConocoPhillips Is Divesting San Juan Basin Assets   [Apr-18-17 09:26AM  Market Realist]
▶ 3 Stocks the Market Is Wrong About   [Apr-17-17 08:44AM  Motley Fool]
▶ Big Oil Is Set To Disappoint Again With Q1 Results   [Apr-16-17 07:00PM  Oilprice.com]
▶ ConocoPhillips' Asset Exodus Continues   [Apr-13-17 01:07PM  Motley Fool]
Stock chart of CVE Financial statements of CVE
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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