Intrinsic value of Concho Resources - CXO

Previous Close

$136.40

  Intrinsic Value

$12.82

stock screener

  Rating & Target

str. sell

-91%

Previous close

$136.40

 
Intrinsic value

$12.82

 
Up/down potential

-91%

 
Rating

str. sell

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 20.3

 

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
  43.20
  39.38
  35.94
  32.85
  30.06
  27.56
  25.30
  23.27
  21.44
  19.80
  18.32
  16.99
  15.79
  14.71
  13.74
  12.87
  12.08
  11.37
  10.73
  10.16
  9.64
  9.18
  8.76
  8.39
  8.05
  7.74
  7.47
  7.22
  7.00
  6.80
Revenue, $m
  1,635
  2,341
  3,263
  4,436
  5,893
  7,665
  9,777
  12,251
  15,102
  18,341
  21,972
  25,997
  30,414
  35,216
  40,396
  45,946
  51,857
  58,120
  64,729
  71,677
  78,959
  86,574
  94,521
  102,803
  111,424
  120,390
  129,711
  139,398
  149,465
  159,926
  170,800
Variable operating expenses, $m
 
  1,915
  2,669
  3,629
  4,821
  6,270
  7,998
  10,022
  12,354
  15,003
  17,973
  21,266
  24,878
  28,806
  33,044
  37,584
  42,419
  47,542
  52,948
  58,631
  64,589
  70,818
  77,319
  84,093
  91,145
  98,479
  106,104
  114,028
  122,262
  130,820
  139,714
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
  1,915
  2,669
  3,629
  4,821
  6,270
  7,998
  10,022
  12,354
  15,003
  17,973
  21,266
  24,878
  28,806
  33,044
  37,584
  42,419
  47,542
  52,948
  58,631
  64,589
  70,818
  77,319
  84,093
  91,145
  98,479
  106,104
  114,028
  122,262
  130,820
  139,714
Operating income, $m
  -2,126
  426
  594
  807
  1,073
  1,395
  1,779
  2,230
  2,749
  3,338
  3,999
  4,732
  5,535
  6,409
  7,352
  8,362
  9,438
  10,578
  11,781
  13,045
  14,371
  15,756
  17,203
  18,710
  20,279
  21,911
  23,607
  25,371
  27,203
  29,107
  31,086
EBITDA, $m
  -959
  2,097
  2,923
  3,973
  5,278
  6,865
  8,757
  10,972
  13,526
  16,426
  19,679
  23,284
  27,239
  31,540
  36,179
  41,150
  46,444
  52,053
  57,972
  64,195
  70,717
  77,537
  84,655
  92,072
  99,793
  107,824
  116,172
  124,848
  133,863
  143,233
  152,971
Interest expense (income), $m
  232
  208
  355
  547
  791
  1,095
  1,464
  1,905
  2,420
  3,015
  3,690
  4,447
  5,286
  6,206
  7,207
  8,287
  9,444
  10,676
  11,981
  13,359
  14,807
  16,325
  17,912
  19,569
  21,295
  23,092
  24,961
  26,904
  28,923
  31,021
  33,202
Earnings before tax, $m
  -2,339
  218
  239
  261
  281
  300
  315
  325
  328
  323
  309
  285
  250
  203
  145
  75
  -6
  -98
  -201
  -314
  -436
  -568
  -709
  -859
  -1,016
  -1,181
  -1,353
  -1,533
  -1,720
  -1,915
  -2,116
Tax expense, $m
  -877
  59
  65
  70
  76
  81
  85
  88
  89
  87
  84
  77
  67
  55
  39
  20
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -1,462
  159
  175
  190
  205
  219
  230
  237
  240
  236
  226
  208
  182
  148
  106
  55
  -6
  -98
  -201
  -314
  -436
  -568
  -709
  -859
  -1,016
  -1,181
  -1,353
  -1,533
  -1,720
  -1,915
  -2,116

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
  17,216
  23,995
  32,619
  43,334
  56,362
  71,893
  90,083
  111,046
  134,859
  161,560
  191,157
  223,630
  258,938
  297,028
  337,836
  381,299
  427,354
  475,947
  527,034
  580,582
  636,574
  695,011
  755,906
  819,294
  885,223
  953,760
  1,024,988
  1,099,006
  1,175,928
  1,255,882
Adjusted assets (=assets-cash), $m
  12,066
  17,216
  23,995
  32,619
  43,334
  56,362
  71,893
  90,083
  111,046
  134,859
  161,560
  191,157
  223,630
  258,938
  297,028
  337,836
  381,299
  427,354
  475,947
  527,034
  580,582
  636,574
  695,011
  755,906
  819,294
  885,223
  953,760
  1,024,988
  1,099,006
  1,175,928
  1,255,882
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
  15,706
  21,890
  29,758
  39,533
  51,418
  65,587
  82,182
  101,306
  123,030
  147,389
  174,390
  204,015
  236,226
  270,975
  308,204
  347,854
  389,870
  434,201
  480,807
  529,658
  580,739
  634,050
  689,604
  747,432
  807,578
  870,104
  935,085
  1,002,610
  1,072,785
  1,145,726
Working capital, $m
  -207
  -372
  -519
  -705
  -937
  -1,219
  -1,555
  -1,948
  -2,401
  -2,916
  -3,494
  -4,134
  -4,836
  -5,599
  -6,423
  -7,305
  -8,245
  -9,241
  -10,292
  -11,397
  -12,554
  -13,765
  -15,029
  -16,346
  -17,716
  -19,142
  -20,624
  -22,164
  -23,765
  -25,428
  -27,157
Total debt, $m
  2,741
  4,666
  7,195
  10,412
  14,409
  19,268
  25,061
  31,846
  39,665
  48,547
  58,507
  69,546
  81,659
  94,829
  109,036
  124,258
  140,470
  157,648
  175,773
  194,829
  214,802
  235,687
  257,484
  280,198
  303,842
  328,433
  353,998
  380,566
  408,174
  436,866
  466,689
Total liabilities, $m
  4,497
  6,421
  8,950
  12,167
  16,164
  21,023
  26,816
  33,601
  41,420
  50,302
  60,262
  71,301
  83,414
  96,584
  110,791
  126,013
  142,225
  159,403
  177,528
  196,584
  216,557
  237,442
  259,239
  281,953
  305,597
  330,188
  355,753
  382,321
  409,929
  438,621
  468,444
Total equity, $m
  7,623
  10,794
  15,045
  20,452
  27,171
  35,339
  45,077
  56,482
  69,626
  84,556
  101,298
  119,855
  140,216
  162,354
  186,236
  211,823
  239,074
  267,951
  298,419
  330,450
  364,025
  399,132
  435,772
  473,953
  513,697
  555,035
  598,008
  642,668
  689,077
  737,307
  787,438
Total liabilities and equity, $m
  12,120
  17,215
  23,995
  32,619
  43,335
  56,362
  71,893
  90,083
  111,046
  134,858
  161,560
  191,156
  223,630
  258,938
  297,027
  337,836
  381,299
  427,354
  475,947
  527,034
  580,582
  636,574
  695,011
  755,906
  819,294
  885,223
  953,761
  1,024,989
  1,099,006
  1,175,928
  1,255,882
Debt-to-equity ratio
  0.360
  0.430
  0.480
  0.510
  0.530
  0.550
  0.560
  0.560
  0.570
  0.570
  0.580
  0.580
  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
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
  159
  175
  190
  205
  219
  230
  237
  240
  236
  226
  208
  182
  148
  106
  55
  -6
  -98
  -201
  -314
  -436
  -568
  -709
  -859
  -1,016
  -1,181
  -1,353
  -1,533
  -1,720
  -1,915
  -2,116
Depreciation, amort., depletion, $m
  1,167
  1,671
  2,329
  3,166
  4,206
  5,470
  6,977
  8,743
  10,777
  13,088
  15,680
  18,552
  21,704
  25,130
  28,827
  32,788
  37,006
  41,476
  46,192
  51,150
  56,347
  61,781
  67,452
  73,362
  79,514
  85,913
  92,564
  99,477
  106,661
  114,126
  121,886
Funds from operations, $m
  1,324
  1,830
  2,503
  3,356
  4,411
  5,689
  7,207
  8,980
  11,017
  13,324
  15,906
  18,760
  21,886
  25,279
  28,933
  32,843
  37,000
  41,378
  45,991
  50,836
  55,910
  61,212
  66,743
  72,504
  78,498
  84,732
  91,211
  97,944
  104,940
  112,211
  119,770
Change in working capital, $m
  -60
  -112
  -147
  -186
  -232
  -282
  -336
  -393
  -453
  -515
  -577
  -640
  -702
  -764
  -824
  -882
  -940
  -996
  -1,051
  -1,105
  -1,158
  -1,211
  -1,264
  -1,317
  -1,371
  -1,426
  -1,482
  -1,540
  -1,601
  -1,663
  -1,729
Cash from operations, $m
  1,384
  1,942
  2,650
  3,542
  4,643
  5,971
  7,543
  9,373
  11,470
  13,839
  16,483
  19,400
  22,588
  26,042
  29,757
  33,725
  37,940
  42,374
  47,042
  51,941
  57,068
  62,423
  68,006
  73,820
  79,869
  86,157
  92,693
  99,484
  106,541
  113,875
  121,498
Maintenance CAPEX, $m
  0
  -1,167
  -1,671
  -2,329
  -3,166
  -4,206
  -5,470
  -6,977
  -8,743
  -10,777
  -13,088
  -15,680
  -18,552
  -21,704
  -25,130
  -28,827
  -32,788
  -37,006
  -41,476
  -46,192
  -51,150
  -56,347
  -61,781
  -67,452
  -73,362
  -79,514
  -85,913
  -92,564
  -99,477
  -106,661
  -114,126
New CAPEX, $m
  -2,458
  -4,739
  -6,185
  -7,868
  -9,775
  -11,885
  -14,169
  -16,594
  -19,124
  -21,724
  -24,359
  -27,001
  -29,625
  -32,211
  -34,749
  -37,229
  -39,651
  -42,016
  -44,331
  -46,605
  -48,851
  -51,081
  -53,311
  -55,554
  -57,828
  -60,146
  -62,526
  -64,981
  -67,525
  -70,175
  -72,942
Cash from investing activities, $m
  -2,225
  -5,906
  -7,856
  -10,197
  -12,941
  -16,091
  -19,639
  -23,571
  -27,867
  -32,501
  -37,447
  -42,681
  -48,177
  -53,915
  -59,879
  -66,056
  -72,439
  -79,022
  -85,807
  -92,797
  -100,001
  -107,428
  -115,092
  -123,006
  -131,190
  -139,660
  -148,439
  -157,545
  -167,002
  -176,836
  -187,068
Free cash flow, $m
  -841
  -3,963
  -5,206
  -6,654
  -8,298
  -10,120
  -12,096
  -14,198
  -16,397
  -18,662
  -20,965
  -23,280
  -25,589
  -27,873
  -30,123
  -32,331
  -34,498
  -36,648
  -38,765
  -40,856
  -42,933
  -45,005
  -47,085
  -49,186
  -51,321
  -53,503
  -55,745
  -58,061
  -60,462
  -62,961
  -65,569
Issuance/(repayment) of debt, $m
  -600
  1,925
  2,529
  3,217
  3,997
  4,859
  5,793
  6,785
  7,819
  8,882
  9,960
  11,040
  12,112
  13,170
  14,207
  15,222
  16,212
  17,179
  18,125
  19,055
  19,973
  20,885
  21,797
  22,714
  23,644
  24,592
  25,564
  26,568
  27,609
  28,692
  29,823
Issuance/(repurchase) of shares, $m
  1,316
  3,065
  4,076
  5,217
  6,513
  7,949
  9,508
  11,168
  12,904
  14,694
  16,516
  18,349
  20,178
  21,990
  23,776
  25,532
  27,257
  28,975
  30,668
  32,345
  34,011
  35,676
  37,349
  39,040
  40,760
  42,519
  44,326
  46,193
  48,129
  50,144
  52,248
Cash from financing (excl. dividends), $m  
  665
  4,990
  6,605
  8,434
  10,510
  12,808
  15,301
  17,953
  20,723
  23,576
  26,476
  29,389
  32,290
  35,160
  37,983
  40,754
  43,469
  46,154
  48,793
  51,400
  53,984
  56,561
  59,146
  61,754
  64,404
  67,111
  69,890
  72,761
  75,738
  78,836
  82,071
Total cash flow (excl. dividends), $m
  -175
  1,027
  1,399
  1,780
  2,211
  2,689
  3,206
  3,754
  4,327
  4,915
  5,511
  6,108
  6,702
  7,287
  7,861
  8,422
  8,970
  9,505
  10,029
  10,544
  11,052
  11,556
  12,061
  12,568
  13,082
  13,607
  14,145
  14,701
  15,276
  15,876
  16,502
Retained Cash Flow (-), $m
  -680
  -3,224
  -4,251
  -5,407
  -6,718
  -8,168
  -9,738
  -11,405
  -13,144
  -14,930
  -16,742
  -18,557
  -20,360
  -22,138
  -23,882
  -25,587
  -27,257
  -28,975
  -30,668
  -32,345
  -34,011
  -35,676
  -37,349
  -39,040
  -40,760
  -42,519
  -44,326
  -46,193
  -48,129
  -50,144
  -52,248
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
 
  -2,144
  -2,852
  -3,627
  -4,507
  -5,480
  -6,533
  -7,651
  -8,817
  -10,016
  -11,231
  -12,449
  -13,658
  -14,851
  -16,021
  -17,165
  -18,287
  -19,469
  -20,639
  -21,801
  -22,959
  -24,120
  -25,288
  -26,472
  -27,677
  -28,912
  -30,181
  -31,493
  -32,853
  -34,269
  -35,746
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
 
  -2,049
  -2,595
  -3,127
  -3,662
  -4,174
  -4,639
  -5,033
  -5,339
  -5,542
  -5,637
  -5,623
  -5,504
  -5,292
  -5,000
  -4,643
  -4,241
  -3,827
  -3,397
  -2,966
  -2,546
  -2,148
  -1,782
  -1,451
  -1,160
  -910
  -700
  -527
  -388
  -280
  -197
Current shareholders' claim on cash, %
  100
  86.8
  76.0
  67.2
  60.1
  54.1
  49.1
  44.9
  41.4
  38.4
  35.7
  33.4
  31.5
  29.7
  28.2
  26.8
  25.5
  24.4
  23.4
  22.5
  21.7
  20.9
  20.2
  19.5
  18.9
  18.3
  17.8
  17.3
  16.8
  16.4
  16.0

Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. The Company's four operating areas include the Northern Delaware Basin, the Southern Delaware Basin, the Midland Basin and the New Mexico Shelf. As of December 31, 2016, the Company's operations were focused in the Permian Basin, which underlies an area of Southeast New Mexico and West Texas approximately 250 miles wide and 300 miles long. The Permian Basin is an oil and natural gas producing region in the United States and is characterized by multiple producing horizons and enhanced recovery potential. As of December 31, 2016, the Company produced approximately 55.1 million barrels of oil equivalent (MMBoe) of oil and natural gas. As of December 31, 2016, all of its 720 MMBoe total estimated proved reserves were located in its core operating areas and consisted of approximately 59.5% oil and 40.5% natural gas.

FINANCIAL RATIOS  of  Concho Resources (CXO)

Valuation Ratios
P/E Ratio -13.6
Price to Sales 12.2
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 14.4
Price to Free Cash Flow -18.5
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 43.2% 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 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 9.4 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 -15.9%. 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 148.684 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 $20.3 billion.

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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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