Intrinsic value of Concho Resources - CXO

Previous Close

$110.55

  Intrinsic Value

$12.92

stock screener

  Rating & Target

str. sell

-88%

  Value-price divergence*

+3%

Previous close

$110.55

 
Intrinsic value

$12.92

 
Up/down potential

-88%

 
Rating

str. sell

 
Value-price divergence*

+3%

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

We calculate the intrinsic value of CXO 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 16.3

 

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, %
  -9.37
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  1,635
  2,616
  4,042
  6,044
  8,770
  12,373
  17,011
  22,833
  29,981
  38,579
  48,728
  60,509
  73,978
  89,168
  106,093
  124,746
  145,110
  167,155
  190,844
  216,141
  243,007
  271,407
  301,310
  332,695
  365,548
  399,862
  435,644
  472,907
  511,677
  551,989
  593,888
Variable operating expenses, $m
 
  2,140
  3,306
  4,944
  7,174
  10,121
  13,915
  18,677
  24,525
  31,557
  39,859
  49,496
  60,514
  72,940
  86,784
  102,043
  118,700
  136,732
  156,111
  176,804
  198,780
  222,011
  246,472
  272,145
  299,018
  327,087
  356,357
  386,838
  418,552
  451,527
  485,800
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
  3,761
  2,140
  3,306
  4,944
  7,174
  10,121
  13,915
  18,677
  24,525
  31,557
  39,859
  49,496
  60,514
  72,940
  86,784
  102,043
  118,700
  136,732
  156,111
  176,804
  198,780
  222,011
  246,472
  272,145
  299,018
  327,087
  356,357
  386,838
  418,552
  451,527
  485,800
Operating income, $m
  -2,126
  476
  736
  1,100
  1,596
  2,252
  3,096
  4,156
  5,457
  7,021
  8,868
  11,013
  13,464
  16,229
  19,309
  22,704
  26,410
  30,422
  34,734
  39,338
  44,227
  49,396
  54,838
  60,551
  66,530
  72,775
  79,287
  86,069
  93,125
  100,462
  108,088
EBITDA, $m
  -959
  2,231
  3,447
  5,155
  7,479
  10,552
  14,507
  19,472
  25,568
  32,900
  41,555
  51,602
  63,089
  76,043
  90,476
  106,384
  123,750
  142,549
  162,752
  184,325
  207,236
  231,455
  256,957
  283,723
  311,739
  341,003
  371,517
  403,295
  436,358
  470,736
  506,468
Interest expense (income), $m
  232
  208
  412
  709
  1,127
  1,695
  2,446
  3,412
  4,626
  6,116
  7,908
  10,024
  12,479
  15,287
  18,453
  21,981
  25,869
  30,114
  34,709
  39,646
  44,919
  50,519
  56,439
  62,672
  69,214
  76,062
  83,214
  90,673
  98,440
  106,521
  114,924
Earnings before tax, $m
  -2,339
  268
  324
  391
  470
  557
  650
  743
  831
  905
  960
  989
  985
  942
  856
  723
  541
  309
  25
  -309
  -692
  -1,123
  -1,600
  -2,122
  -2,684
  -3,287
  -3,927
  -4,604
  -5,315
  -6,059
  -6,836
Tax expense, $m
  -877
  72
  87
  106
  127
  150
  176
  201
  224
  244
  259
  267
  266
  254
  231
  195
  146
  83
  7
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -1,462
  195
  236
  285
  343
  407
  475
  543
  606
  661
  701
  722
  719
  688
  625
  528
  395
  225
  18
  -309
  -692
  -1,123
  -1,600
  -2,122
  -2,684
  -3,287
  -3,927
  -4,604
  -5,315
  -6,059
  -6,836

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  53
  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
  12,119
  19,235
  29,719
  44,444
  64,486
  90,981
  125,077
  167,890
  220,451
  283,666
  358,294
  444,919
  543,957
  655,651
  780,095
  917,253
  1,066,985
  1,229,078
  1,403,268
  1,589,274
  1,786,816
  1,995,636
  2,215,516
  2,446,290
  2,687,851
  2,940,164
  3,203,263
  3,477,257
  3,762,331
  4,058,743
  4,366,825
Adjusted assets (=assets-cash), $m
  12,066
  19,235
  29,719
  44,444
  64,486
  90,981
  125,077
  167,890
  220,451
  283,666
  358,294
  444,919
  543,957
  655,651
  780,095
  917,253
  1,066,985
  1,229,078
  1,403,268
  1,589,274
  1,786,816
  1,995,636
  2,215,516
  2,446,290
  2,687,851
  2,940,164
  3,203,263
  3,477,257
  3,762,331
  4,058,743
  4,366,825
Revenue / Adjusted assets
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
  0.136
Average production assets, $m
  10,967
  17,548
  27,112
  40,546
  58,830
  83,000
  114,107
  153,164
  201,114
  258,785
  326,867
  405,895
  496,245
  598,142
  711,671
  836,799
  973,398
  1,121,273
  1,280,185
  1,449,876
  1,630,091
  1,820,595
  2,021,189
  2,231,721
  2,452,095
  2,682,277
  2,922,298
  3,172,260
  3,432,329
  3,702,742
  3,983,802
Working capital, $m
  -207
  -262
  -404
  -604
  -877
  -1,237
  -1,701
  -2,283
  -2,998
  -3,858
  -4,873
  -6,051
  -7,398
  -8,917
  -10,609
  -12,475
  -14,511
  -16,715
  -19,084
  -21,614
  -24,301
  -27,141
  -30,131
  -33,270
  -36,555
  -39,986
  -43,564
  -47,291
  -51,168
  -55,199
  -59,389
Total debt, $m
  2,741
  5,420
  9,330
  14,823
  22,298
  32,181
  44,899
  60,868
  80,473
  104,053
  131,889
  164,200
  201,141
  242,803
  289,220
  340,380
  396,231
  456,691
  521,664
  591,044
  664,727
  742,617
  824,633
  910,711
  1,000,814
  1,094,926
  1,193,062
  1,295,262
  1,401,594
  1,512,156
  1,627,071
Total liabilities, $m
  4,497
  7,175
  11,085
  16,578
  24,053
  33,936
  46,654
  62,623
  82,228
  105,808
  133,644
  165,955
  202,896
  244,558
  290,975
  342,135
  397,986
  458,446
  523,419
  592,799
  666,482
  744,372
  826,388
  912,466
  1,002,569
  1,096,681
  1,194,817
  1,297,017
  1,403,349
  1,513,911
  1,628,826
Total equity, $m
  7,623
  12,061
  18,634
  27,866
  40,433
  57,045
  78,423
  105,267
  138,223
  177,859
  224,650
  278,964
  341,061
  411,093
  489,119
  575,118
  669,000
  770,632
  879,849
  996,475
  1,120,334
  1,251,264
  1,389,129
  1,533,824
  1,685,283
  1,843,483
  2,008,446
  2,180,240
  2,358,981
  2,544,832
  2,737,999
Total liabilities and equity, $m
  12,120
  19,236
  29,719
  44,444
  64,486
  90,981
  125,077
  167,890
  220,451
  283,667
  358,294
  444,919
  543,957
  655,651
  780,094
  917,253
  1,066,986
  1,229,078
  1,403,268
  1,589,274
  1,786,816
  1,995,636
  2,215,517
  2,446,290
  2,687,852
  2,940,164
  3,203,263
  3,477,257
  3,762,330
  4,058,743
  4,366,825
Debt-to-equity ratio
  0.360
  0.450
  0.500
  0.530
  0.550
  0.560
  0.570
  0.580
  0.580
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
Adjusted equity ratio
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627
  0.627

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1,462
  195
  236
  285
  343
  407
  475
  543
  606
  661
  701
  722
  719
  688
  625
  528
  395
  225
  18
  -309
  -692
  -1,123
  -1,600
  -2,122
  -2,684
  -3,287
  -3,927
  -4,604
  -5,315
  -6,059
  -6,836
Depreciation, amort., depletion, $m
  1,167
  1,755
  2,711
  4,055
  5,883
  8,300
  11,411
  15,316
  20,111
  25,879
  32,687
  40,589
  49,625
  59,814
  71,167
  83,680
  97,340
  112,127
  128,018
  144,988
  163,009
  182,059
  202,119
  223,172
  245,209
  268,228
  292,230
  317,226
  343,233
  370,274
  398,380
Funds from operations, $m
  1,324
  1,950
  2,947
  4,340
  6,226
  8,707
  11,885
  15,859
  20,718
  26,539
  33,388
  41,312
  50,343
  60,502
  71,792
  84,208
  97,735
  112,353
  128,037
  144,679
  162,317
  180,936
  200,518
  221,051
  242,525
  264,941
  288,303
  312,622
  337,918
  364,215
  391,544
Change in working capital, $m
  -60
  -98
  -143
  -200
  -273
  -360
  -464
  -582
  -715
  -860
  -1,015
  -1,178
  -1,347
  -1,519
  -1,692
  -1,865
  -2,036
  -2,204
  -2,369
  -2,530
  -2,687
  -2,840
  -2,990
  -3,139
  -3,285
  -3,431
  -3,578
  -3,726
  -3,877
  -4,031
  -4,190
Cash from operations, $m
  1,384
  2,048
  3,090
  4,540
  6,498
  9,067
  12,349
  16,441
  21,433
  27,399
  34,403
  42,490
  51,690
  62,021
  73,484
  86,073
  99,771
  114,557
  130,406
  147,209
  165,004
  183,776
  203,509
  224,189
  245,810
  268,372
  291,881
  316,349
  341,795
  368,246
  395,734
Maintenance CAPEX, $m
  0
  -1,097
  -1,755
  -2,711
  -4,055
  -5,883
  -8,300
  -11,411
  -15,316
  -20,111
  -25,879
  -32,687
  -40,589
  -49,625
  -59,814
  -71,167
  -83,680
  -97,340
  -112,127
  -128,018
  -144,988
  -163,009
  -182,059
  -202,119
  -223,172
  -245,209
  -268,228
  -292,230
  -317,226
  -343,233
  -370,274
New CAPEX, $m
  -2,458
  -6,581
  -9,564
  -13,434
  -18,284
  -24,171
  -31,106
  -39,058
  -47,950
  -57,671
  -68,082
  -79,028
  -90,350
  -101,897
  -113,529
  -125,128
  -136,599
  -147,875
  -158,912
  -169,691
  -180,215
  -190,504
  -200,594
  -210,532
  -220,374
  -230,182
  -240,022
  -249,962
  -260,069
  -270,413
  -281,059
Cash from investing activities, $m
  -2,225
  -7,678
  -11,319
  -16,145
  -22,339
  -30,054
  -39,406
  -50,469
  -63,266
  -77,782
  -93,961
  -111,715
  -130,939
  -151,522
  -173,343
  -196,295
  -220,279
  -245,215
  -271,039
  -297,709
  -325,203
  -353,513
  -382,653
  -412,651
  -443,546
  -475,391
  -508,250
  -542,192
  -577,295
  -613,646
  -651,333
Free cash flow, $m
  -841
  -5,629
  -8,228
  -11,605
  -15,840
  -20,986
  -27,057
  -34,027
  -41,834
  -50,383
  -59,557
  -69,225
  -79,250
  -89,501
  -99,859
  -110,222
  -120,508
  -130,658
  -140,633
  -150,501
  -160,199
  -169,737
  -179,145
  -188,462
  -197,736
  -207,019
  -216,369
  -225,843
  -235,500
  -245,400
  -255,600
Issuance/(repayment) of debt, $m
  -600
  2,679
  3,910
  5,493
  7,476
  9,882
  12,718
  15,969
  19,605
  23,579
  27,836
  32,311
  36,941
  41,662
  46,418
  51,160
  55,850
  60,460
  64,973
  69,380
  73,683
  77,890
  82,015
  86,079
  90,103
  94,113
  98,136
  102,200
  106,333
  110,562
  114,914
Issuance/(repurchase) of shares, $m
  1,316
  4,295
  6,337
  8,947
  12,224
  16,205
  20,904
  26,301
  32,349
  38,975
  46,090
  53,592
  61,377
  69,345
  77,402
  85,470
  93,487
  101,407
  109,199
  116,935
  124,551
  132,054
  139,465
  146,816
  154,144
  161,487
  168,890
  176,398
  184,056
  191,909
  200,003
Cash from financing (excl. dividends), $m  
  665
  6,974
  10,247
  14,440
  19,700
  26,087
  33,622
  42,270
  51,954
  62,554
  73,926
  85,903
  98,318
  111,007
  123,820
  136,630
  149,337
  161,867
  174,172
  186,315
  198,234
  209,944
  221,480
  232,895
  244,247
  255,600
  267,026
  278,598
  290,389
  302,471
  314,917
Total cash flow (excl. dividends), $m
  -175
  1,344
  2,018
  2,835
  3,859
  5,101
  6,565
  8,243
  10,120
  12,172
  14,369
  16,679
  19,069
  21,506
  23,961
  26,409
  28,830
  31,209
  33,539
  35,814
  38,035
  40,206
  42,336
  44,433
  46,510
  48,581
  50,657
  52,755
  54,888
  57,071
  59,318
Retained Cash Flow (-), $m
  -680
  -4,491
  -6,573
  -9,233
  -12,566
  -16,612
  -21,379
  -26,844
  -32,955
  -39,636
  -46,791
  -54,314
  -62,096
  -70,032
  -78,027
  -85,998
  -93,882
  -101,632
  -109,217
  -116,935
  -124,551
  -132,054
  -139,465
  -146,816
  -154,144
  -161,487
  -168,890
  -176,398
  -184,056
  -191,909
  -200,003
Prev. year cash balance distribution, $m
 
  53
  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
 
  -3,093
  -4,555
  -6,398
  -8,707
  -11,511
  -14,814
  -18,601
  -22,835
  -27,465
  -32,423
  -37,635
  -43,028
  -48,526
  -54,066
  -59,590
  -65,053
  -70,422
  -75,679
  -81,121
  -86,516
  -91,847
  -97,129
  -102,383
  -107,633
  -112,906
  -118,233
  -123,643
  -129,168
  -134,838
  -140,685
Discount rate, %
 
  4.60
  4.83
  5.07
  5.33
  5.59
  5.87
  6.16
  6.47
  6.80
  7.14
  7.49
  7.87
  8.26
  8.67
  9.11
  9.56
  10.04
  10.54
  11.07
  11.62
  12.21
  12.82
  13.46
  14.13
  14.84
  15.58
  16.36
  17.17
  18.03
  18.93
PV of cash for distribution, $m
 
  -2,957
  -4,145
  -5,515
  -7,076
  -8,769
  -10,520
  -12,237
  -13,826
  -15,197
  -16,274
  -16,999
  -17,340
  -17,292
  -16,872
  -16,119
  -15,088
  -13,844
  -12,456
  -11,035
  -9,593
  -8,181
  -6,843
  -5,613
  -4,513
  -3,555
  -2,742
  -2,069
  -1,527
  -1,101
  -775
Current shareholders' claim on cash, %
  100
  79.0
  63.4
  51.8
  43.0
  36.2
  30.9
  26.7
  23.4
  20.6
  18.4
  16.6
  15.0
  13.7
  12.6
  11.7
  10.8
  10.1
  9.5
  8.9
  8.4
  8.0
  7.6
  7.2
  6.9
  6.6
  6.3
  6.1
  5.9
  5.7
  5.5

Concho Resources Inc., an independent oil and natural gas company, engages in the acquisition, development, exploration, and production of oil and natural gas properties in the United States. The company’s principal operating areas are located in the Permian Basin of southeast New Mexico and west Texas. As of December 31, 2016, its total estimated proved reserves were 720.0 million barrels of oil equivalent. Concho Resources Inc. was founded in 2006 and is headquartered in Midland, Texas.

FINANCIAL RATIOS  of  Concho Resources (CXO)

Valuation Ratios
P/E Ratio -11
Price to Sales 9.9
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 11.7
Price to Free Cash Flow -15
Growth Rates
Sales Growth Rate -9.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.1%
Cap. Spend. - 3 Yr. Gr. Rate 5.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 36%
Total Debt to Equity 36%
Interest Coverage -9
Management Effectiveness
Return On Assets -10.6%
Ret/ On Assets - 3 Yr. Avg. -0.9%
Return On Total Capital -14.2%
Ret/ On T. Cap. - 3 Yr. Avg. -2.3%
Return On Equity -20.1%
Return On Equity - 3 Yr. Avg. -2.4%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 72.4%
Gross Margin - 3 Yr. Avg. 74%
EBITDA Margin -57.5%
EBITDA Margin - 3 Yr. Avg. 34.8%
Operating Margin -130%
Oper. Margin - 3 Yr. Avg. -23.7%
Pre-Tax Margin -143.1%
Pre-Tax Margin - 3 Yr. Avg. -35.2%
Net Profit Margin -89.4%
Net Profit Margin - 3 Yr. Avg. -21.8%
Effective Tax Rate 37.5%
Eff/ Tax Rate - 3 Yr. Avg. 35.5%
Payout Ratio 0%

CXO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CXO stock intrinsic value calculation we used $1635 million for the last fiscal year's total revenue generated by Concho Resources. The default revenue input number comes from 2016 income statement of Concho Resources. 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 CXO 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 4.6%, whose default value for CXO is calculated based on our internal credit rating of Concho Resources, 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 Concho Resources.
    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 CXO stock the variable cost ratio is equal to 81.8%.

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 CXO 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 7.6% for Concho Resources.

Corporate tax rate of 27% is the nominal tax rate for Concho Resources. 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 CXO 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 CXO are equal to 670.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Concho Resources 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 CXO is equal to -10%. 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 - $7623 million for Concho Resources - 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 147.476 million for Concho Resources 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 Concho Resources at the current share price and the inputted number of shares is $16.3 billion.

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COMPANY NEWS

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▶ How Concho Resources Stock Reacted to 2Q17 Earnings   [Aug-04-17 12:06PM  Market Realist]
▶ Concho Resources tops 2Q profit forecasts   [Aug-02-17 09:38PM  Associated Press]
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▶ The Short Interest Trends in Concho Resources Stock   [Jul-21-17 09:11AM  Market Realist]
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▶ Energy Stocks And Industry News: Oil, Gas, Solar, Coal   [04:23PM  Investor's Business Daily]
▶ Concho Resources tops 1Q profit forecasts   [04:22PM  Associated Press]
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▶ Oasis Petroleum: Whats in Store for 1Q17?   [07:40AM  Market Realist]
▶ Can Shale Oil Growth Offset Decline In Conventional Activity?   [Apr-27-17 09:54AM  Investor's Business Daily]
▶ Betting on Oil's Turnaround? Here's Where to Put Your Money   [Apr-24-17 07:47AM  TheStreet.com]
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Stock chart of CXO Financial statements of CXO
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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