Intrinsic value of Devon Energy - DVN

Previous Close

$31.99

  Intrinsic Value

$0.93

stock screener

  Rating & Target

str. sell

-97%

  Value-price divergence*

-98%

Previous close

$31.99

 
Intrinsic value

$0.93

 
Up/down potential

-97%

 
Rating

str. sell

 
Value-price divergence*

-98%

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

We calculate the intrinsic value of DVN 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 16.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -21.61
  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
  10,304
  16,486
  25,471
  38,093
  55,270
  77,979
  107,203
  143,897
  188,946
  243,128
  307,090
  381,337
  466,220
  561,952
  668,612
  786,169
  914,504
  1,053,432
  1,202,729
  1,362,153
  1,531,464
  1,710,442
  1,898,899
  2,096,693
  2,303,734
  2,519,989
  2,745,488
  2,980,326
  3,224,660
  3,478,712
  3,742,767
Variable operating expenses, $m
 
  42,248
  65,057
  97,096
  140,702
  198,347
  272,533
  365,684
  480,042
  617,584
  779,954
  968,034
  1,183,514
  1,426,533
  1,697,292
  1,995,714
  2,321,495
  2,674,167
  3,053,162
  3,457,865
  3,887,667
  4,342,008
  4,820,412
  5,322,518
  5,848,096
  6,397,066
  6,969,503
  7,565,646
  8,185,896
  8,830,814
  9,501,123
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
  13,468
  42,248
  65,057
  97,096
  140,702
  198,347
  272,533
  365,684
  480,042
  617,584
  779,954
  968,034
  1,183,514
  1,426,533
  1,697,292
  1,995,714
  2,321,495
  2,674,167
  3,053,162
  3,457,865
  3,887,667
  4,342,008
  4,820,412
  5,322,518
  5,848,096
  6,397,066
  6,969,503
  7,565,646
  8,185,896
  8,830,814
  9,501,123
Operating income, $m
  -3,164
  -25,761
  -39,585
  -59,003
  -85,432
  -120,369
  -165,331
  -221,787
  -291,096
  -374,456
  -472,864
  -586,697
  -717,294
  -864,580
  -1,028,680
  -1,209,545
  -1,406,991
  -1,620,736
  -1,850,434
  -2,095,712
  -2,356,203
  -2,631,566
  -2,921,513
  -3,225,824
  -3,544,362
  -3,877,077
  -4,224,015
  -4,585,320
  -4,961,235
  -5,352,102
  -5,758,357
EBITDA, $m
  -1,372
  -23,071
  -35,645
  -53,308
  -77,347
  -109,125
  -150,022
  -201,373
  -264,416
  -340,239
  -429,749
  -533,651
  -652,440
  -786,410
  -935,672
  -1,100,184
  -1,279,778
  -1,474,197
  -1,683,127
  -1,906,229
  -2,143,167
  -2,393,633
  -2,657,365
  -2,934,162
  -3,223,900
  -3,526,532
  -3,842,102
  -4,170,740
  -4,512,667
  -4,868,193
  -5,237,717
Interest expense (income), $m
  566
  498
  1,085
  1,939
  3,138
  4,771
  6,929
  9,706
  13,194
  17,475
  22,624
  28,703
  35,759
  43,827
  52,925
  63,061
  74,234
  86,430
  99,633
  113,822
  128,973
  145,064
  162,074
  179,984
  198,782
  218,459
  239,011
  260,442
  282,760
  305,981
  330,125
Earnings before tax, $m
  -3,877
  -26,259
  -40,670
  -60,942
  -88,570
  -125,140
  -172,260
  -231,493
  -304,290
  -391,931
  -495,488
  -615,401
  -753,053
  -908,407
  -1,081,605
  -1,272,606
  -1,481,225
  -1,707,166
  -1,950,067
  -2,209,535
  -2,485,176
  -2,776,630
  -3,083,587
  -3,405,809
  -3,743,144
  -4,095,536
  -4,463,026
  -4,845,762
  -5,243,995
  -5,658,083
  -6,088,482
Tax expense, $m
  -173
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -3,302
  -26,259
  -40,670
  -60,942
  -88,570
  -125,140
  -172,260
  -231,493
  -304,290
  -391,931
  -495,488
  -615,401
  -753,053
  -908,407
  -1,081,605
  -1,272,606
  -1,481,225
  -1,707,166
  -1,950,067
  -2,209,535
  -2,485,176
  -2,776,630
  -3,083,587
  -3,405,809
  -3,743,144
  -4,095,536
  -4,463,026
  -4,845,762
  -5,243,995
  -5,658,083
  -6,088,482

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,959
  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
  25,913
  38,340
  59,236
  88,587
  128,536
  181,346
  249,308
  334,645
  439,410
  565,414
  714,164
  886,829
  1,084,234
  1,306,866
  1,554,913
  1,828,301
  2,126,753
  2,449,841
  2,797,044
  3,167,797
  3,561,545
  3,977,772
  4,416,045
  4,876,031
  5,357,520
  5,860,439
  6,384,857
  6,930,991
  7,499,210
  8,090,029
  8,704,108
Adjusted assets (=assets-cash), $m
  23,954
  38,340
  59,236
  88,587
  128,536
  181,346
  249,308
  334,645
  439,410
  565,414
  714,164
  886,829
  1,084,234
  1,306,866
  1,554,913
  1,828,301
  2,126,753
  2,449,841
  2,797,044
  3,167,797
  3,561,545
  3,977,772
  4,416,045
  4,876,031
  5,357,520
  5,860,439
  6,384,857
  6,930,991
  7,499,210
  8,090,029
  8,704,108
Revenue / Adjusted assets
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
  0.430
Average production assets, $m
  17,629
  28,208
  43,582
  65,176
  94,568
  133,421
  183,424
  246,208
  323,287
  415,992
  525,432
  652,467
  797,703
  961,500
  1,143,996
  1,345,136
  1,564,716
  1,802,422
  2,057,869
  2,330,644
  2,620,335
  2,926,566
  3,249,017
  3,587,442
  3,941,688
  4,311,701
  4,697,531
  5,099,338
  5,517,394
  5,952,077
  6,403,874
Working capital, $m
  1,156
  -1,286
  -1,987
  -2,971
  -4,311
  -6,082
  -8,362
  -11,224
  -14,738
  -18,964
  -23,953
  -29,744
  -36,365
  -43,832
  -52,152
  -61,321
  -71,331
  -82,168
  -93,813
  -106,248
  -119,454
  -133,414
  -148,114
  -163,542
  -179,691
  -196,559
  -214,148
  -232,465
  -251,524
  -271,340
  -291,936
Total debt, $m
  10,154
  22,144
  39,571
  64,050
  97,367
  141,410
  198,091
  269,262
  356,636
  461,723
  585,780
  729,783
  894,419
  1,080,094
  1,286,965
  1,514,971
  1,763,880
  2,033,335
  2,322,902
  2,632,111
  2,960,496
  3,307,630
  3,673,149
  4,056,778
  4,458,340
  4,877,774
  5,315,138
  5,770,615
  6,244,509
  6,737,252
  7,249,394
Total liabilities, $m
  19,986
  31,976
  49,403
  73,882
  107,199
  151,242
  207,923
  279,094
  366,468
  471,555
  595,612
  739,615
  904,251
  1,089,926
  1,296,797
  1,524,803
  1,773,712
  2,043,167
  2,332,734
  2,641,943
  2,970,328
  3,317,462
  3,682,981
  4,066,610
  4,468,172
  4,887,606
  5,324,970
  5,780,447
  6,254,341
  6,747,084
  7,259,226
Total equity, $m
  5,927
  6,365
  9,833
  14,706
  21,337
  30,103
  41,385
  55,551
  72,942
  93,859
  118,551
  147,214
  179,983
  216,940
  258,115
  303,498
  353,041
  406,674
  464,309
  525,854
  591,216
  660,310
  733,063
  809,421
  889,348
  972,833
  1,059,886
  1,150,545
  1,244,869
  1,342,945
  1,444,882
Total liabilities and equity, $m
  25,913
  38,341
  59,236
  88,588
  128,536
  181,345
  249,308
  334,645
  439,410
  565,414
  714,163
  886,829
  1,084,234
  1,306,866
  1,554,912
  1,828,301
  2,126,753
  2,449,841
  2,797,043
  3,167,797
  3,561,544
  3,977,772
  4,416,044
  4,876,031
  5,357,520
  5,860,439
  6,384,856
  6,930,992
  7,499,210
  8,090,029
  8,704,108
Debt-to-equity ratio
  1.713
  3.480
  4.020
  4.360
  4.560
  4.700
  4.790
  4.850
  4.890
  4.920
  4.940
  4.960
  4.970
  4.980
  4.990
  4.990
  5.000
  5.000
  5.000
  5.010
  5.010
  5.010
  5.010
  5.010
  5.010
  5.010
  5.010
  5.020
  5.020
  5.020
  5.020
Adjusted equity ratio
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166
  0.166

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3,302
  -26,259
  -40,670
  -60,942
  -88,570
  -125,140
  -172,260
  -231,493
  -304,290
  -391,931
  -495,488
  -615,401
  -753,053
  -908,407
  -1,081,605
  -1,272,606
  -1,481,225
  -1,707,166
  -1,950,067
  -2,209,535
  -2,485,176
  -2,776,630
  -3,083,587
  -3,405,809
  -3,743,144
  -4,095,536
  -4,463,026
  -4,845,762
  -5,243,995
  -5,658,083
  -6,088,482
Depreciation, amort., depletion, $m
  1,792
  2,690
  3,940
  5,695
  8,085
  11,244
  15,309
  20,413
  26,680
  34,217
  43,114
  53,046
  64,854
  78,171
  93,008
  109,361
  127,213
  146,538
  167,306
  189,483
  213,035
  237,932
  264,148
  291,662
  320,462
  350,545
  381,913
  414,580
  448,569
  483,909
  520,640
Funds from operations, $m
  1,773
  -23,569
  -36,730
  -55,247
  -80,485
  -113,896
  -156,951
  -211,080
  -277,610
  -357,714
  -452,374
  -562,355
  -688,199
  -830,236
  -988,597
  -1,163,245
  -1,354,012
  -1,560,627
  -1,782,761
  -2,020,051
  -2,272,141
  -2,538,698
  -2,819,439
  -3,114,147
  -3,422,682
  -3,744,991
  -4,081,113
  -4,431,181
  -4,795,427
  -5,174,174
  -5,567,842
Change in working capital, $m
  27
  -482
  -701
  -984
  -1,340
  -1,771
  -2,279
  -2,862
  -3,514
  -4,226
  -4,989
  -5,791
  -6,621
  -7,467
  -8,319
  -9,169
  -10,010
  -10,836
  -11,645
  -12,435
  -13,206
  -13,960
  -14,700
  -15,428
  -16,149
  -16,868
  -17,589
  -18,317
  -19,058
  -19,816
  -20,596
Cash from operations, $m
  1,746
  -23,087
  -36,030
  -54,262
  -79,145
  -112,125
  -154,672
  -208,218
  -274,096
  -353,488
  -447,385
  -556,563
  -681,578
  -822,769
  -980,277
  -1,154,076
  -1,344,002
  -1,549,791
  -1,771,115
  -2,007,616
  -2,258,935
  -2,524,737
  -2,804,739
  -3,098,719
  -3,406,533
  -3,728,123
  -4,063,524
  -4,412,864
  -4,776,369
  -5,154,358
  -5,547,246
Maintenance CAPEX, $m
  0
  -1,433
  -2,293
  -3,543
  -5,299
  -7,688
  -10,847
  -14,912
  -20,017
  -26,283
  -33,820
  -42,718
  -53,046
  -64,854
  -78,171
  -93,008
  -109,361
  -127,213
  -146,538
  -167,306
  -189,483
  -213,035
  -237,932
  -264,148
  -291,662
  -320,462
  -350,545
  -381,913
  -414,580
  -448,569
  -483,909
New CAPEX, $m
  -2,330
  -10,579
  -15,373
  -21,595
  -29,391
  -38,854
  -50,002
  -62,785
  -77,079
  -92,705
  -109,440
  -127,035
  -145,236
  -163,797
  -182,495
  -201,140
  -219,580
  -237,706
  -255,447
  -272,775
  -289,692
  -306,231
  -322,450
  -338,425
  -354,246
  -370,012
  -385,830
  -401,808
  -418,056
  -434,683
  -451,797
Cash from investing activities, $m
  -872
  -12,012
  -17,666
  -25,138
  -34,690
  -46,542
  -60,849
  -77,697
  -97,096
  -118,988
  -143,260
  -169,753
  -198,282
  -228,651
  -260,666
  -294,148
  -328,941
  -364,919
  -401,985
  -440,081
  -479,175
  -519,266
  -560,382
  -602,573
  -645,908
  -690,474
  -736,375
  -783,721
  -832,636
  -883,252
  -935,706
Free cash flow, $m
  874
  -35,099
  -53,696
  -79,400
  -113,836
  -158,667
  -215,521
  -285,915
  -371,192
  -472,476
  -590,645
  -726,317
  -879,861
  -1,051,420
  -1,240,943
  -1,448,224
  -1,672,943
  -1,914,709
  -2,173,101
  -2,447,697
  -2,738,109
  -3,044,004
  -3,365,122
  -3,701,292
  -4,052,441
  -4,418,598
  -4,799,898
  -5,196,585
  -5,609,005
  -6,037,610
  -6,482,951
Issuance/(repayment) of debt, $m
  -2,890
  11,990
  17,427
  24,479
  33,317
  44,043
  56,681
  71,171
  87,374
  105,087
  124,057
  144,003
  164,635
  185,675
  206,871
  228,006
  248,909
  269,455
  289,567
  309,209
  328,385
  347,134
  365,519
  383,628
  401,562
  419,434
  437,364
  455,476
  473,895
  492,743
  512,142
Issuance/(repurchase) of shares, $m
  2,361
  28,655
  44,139
  65,814
  95,202
  133,906
  183,542
  245,659
  321,681
  412,848
  520,181
  644,063
  785,822
  945,364
  1,122,780
  1,317,989
  1,530,768
  1,760,798
  2,007,703
  2,271,080
  2,550,538
  2,845,724
  3,156,340
  3,482,166
  3,823,072
  4,179,020
  4,550,079
  4,936,420
  5,338,320
  5,756,159
  6,190,419
Cash from financing (excl. dividends), $m  
  -943
  40,645
  61,566
  90,293
  128,519
  177,949
  240,223
  316,830
  409,055
  517,935
  644,238
  788,066
  950,457
  1,131,039
  1,329,651
  1,545,995
  1,779,677
  2,030,253
  2,297,270
  2,580,289
  2,878,923
  3,192,858
  3,521,859
  3,865,794
  4,224,634
  4,598,454
  4,987,443
  5,391,896
  5,812,215
  6,248,902
  6,702,561
Total cash flow (excl. dividends), $m
  -130
  5,546
  7,869
  10,893
  14,683
  19,282
  24,702
  30,915
  37,863
  45,459
  53,593
  61,750
  70,597
  79,619
  88,708
  97,771
  106,734
  115,545
  124,168
  132,591
  140,814
  148,854
  156,737
  164,503
  172,193
  179,857
  187,545
  195,312
  203,210
  211,292
  219,610
Retained Cash Flow (-), $m
  1,122
  -28,655
  -44,139
  -65,814
  -95,202
  -133,906
  -183,542
  -245,659
  -321,681
  -412,848
  -520,181
  -644,063
  -785,822
  -945,364
  -1,122,780
  -1,317,989
  -1,530,768
  -1,760,798
  -2,007,703
  -2,271,080
  -2,550,538
  -2,845,724
  -3,156,340
  -3,482,166
  -3,823,072
  -4,179,020
  -4,550,079
  -4,936,420
  -5,338,320
  -5,756,159
  -6,190,419
Prev. year cash balance distribution, $m
 
  1,959
  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
 
  -21,150
  -36,270
  -54,921
  -80,519
  -114,624
  -158,840
  -214,744
  -283,818
  -367,389
  -466,588
  -582,314
  -715,226
  -865,745
  -1,034,072
  -1,220,218
  -1,424,034
  -1,645,254
  -1,883,534
  -2,138,489
  -2,409,724
  -2,696,870
  -2,999,602
  -3,317,664
  -3,650,879
  -3,999,164
  -4,362,534
  -4,741,108
  -5,135,110
  -5,544,867
  -5,970,809
Discount rate, %
 
  8.00
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
PV of cash for distribution, $m
 
  -19,584
  -30,866
  -42,620
  -56,498
  -72,072
  -88,640
  -105,273
  -120,900
  -134,420
  -144,830
  -151,348
  -153,500
  -151,178
  -144,637
  -134,459
  -121,471
  -106,639
  -90,962
  -75,369
  -60,639
  -47,350
  -35,863
  -26,328
  -18,719
  -12,879
  -8,566
  -5,501
  -3,408
  -2,034
  -1,168
Current shareholders' claim on cash, %
  100
  28.3
  8.2
  2.5
  0.8
  0.2
  0.1
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Devon Energy Corporation, an independent energy company, primarily engages in the exploration, development, and production of oil, natural gas, and natural gas liquids in the United States and Canada. It operates approximately 15,200 gross wells. The company also offers gathering, transmission, processing, storage, fractionation, and marketing to upstream oil and natural gas producers; and owns natural gas pipelines, plants and treatment facilities. Devon Energy Corporation was founded in 1971 and is headquartered in Oklahoma City, Oklahoma.

FINANCIAL RATIOS  of  Devon Energy (DVN)

Valuation Ratios
P/E Ratio -5.1
Price to Sales 1.6
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 9.6
Price to Free Cash Flow -28.6
Growth Rates
Sales Growth Rate -21.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -56.1%
Cap. Spend. - 3 Yr. Gr. Rate -19.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 171.3%
Total Debt to Equity 171.3%
Interest Coverage -6
Management Effectiveness
Return On Assets -10%
Ret/ On Assets - 3 Yr. Avg. -13.8%
Return On Total Capital -18.3%
Ret/ On T. Cap. - 3 Yr. Avg. -22.7%
Return On Equity -50.9%
Return On Equity - 3 Yr. Avg. -48.1%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 83.3%
Gross Margin - 3 Yr. Avg. 84%
EBITDA Margin -14.7%
EBITDA Margin - 3 Yr. Avg. -36.2%
Operating Margin -30.7%
Oper. Margin - 3 Yr. Avg. -54.9%
Pre-Tax Margin -37.6%
Pre-Tax Margin - 3 Yr. Avg. -59.6%
Net Profit Margin -32%
Net Profit Margin - 3 Yr. Avg. -44.6%
Effective Tax Rate 4.5%
Eff/ Tax Rate - 3 Yr. Avg. 30.4%
Payout Ratio -6.7%

DVN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DVN stock intrinsic value calculation we used $10304 million for the last fiscal year's total revenue generated by Devon Energy. The default revenue input number comes from 2016 income statement of Devon 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 DVN 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 8%, whose default value for DVN is calculated based on our internal credit rating of Devon 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 Devon 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 DVN stock the variable cost ratio is equal to 257.7%.

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 DVN 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 4.9% for Devon Energy.

Corporate tax rate of 27% is the nominal tax rate for Devon 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 DVN 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 DVN are equal to 171.1%.

Life of production assets of 12.3 years is the average useful life of capital assets used in Devon 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 DVN is equal to -7.8%. 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 - $5927 million for Devon 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 528.344 million for Devon 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 Devon Energy at the current share price and the inputted number of shares is $16.9 billion.

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Stock chart of DVN Financial statements of DVN Annual reports of DVN
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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