Intrinsic value of Devon Energy - DVN

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$39.35

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$39.35

 
Intrinsic value

$0.93

 
Up/down potential

-98%

 
Rating

str. sell

 
Value-price divergence* premium content

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*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 20.8

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  10,304
  10,510
  10,752
  11,028
  11,338
  11,682
  12,059
  12,470
  12,915
  13,393
  13,907
  14,457
  15,044
  15,669
  16,333
  17,037
  17,784
  18,574
  19,410
  20,293
  21,226
  22,210
  23,247
  24,341
  25,493
  26,707
  27,985
  29,330
  30,745
  32,234
  33,800
Variable operating expenses, $m
 
  27,077
  27,690
  28,392
  29,179
  30,052
  31,009
  32,052
  33,180
  34,396
  35,701
  36,700
  38,190
  39,776
  41,461
  43,250
  45,145
  47,152
  49,273
  51,515
  53,882
  56,380
  59,014
  61,790
  64,715
  67,796
  71,040
  74,454
  78,047
  81,827
  85,802
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
  27,077
  27,690
  28,392
  29,179
  30,052
  31,009
  32,052
  33,180
  34,396
  35,701
  36,700
  38,190
  39,776
  41,461
  43,250
  45,145
  47,152
  49,273
  51,515
  53,882
  56,380
  59,014
  61,790
  64,715
  67,796
  71,040
  74,454
  78,047
  81,827
  85,802
Operating income, $m
  -3,164
  -16,566
  -16,938
  -17,364
  -17,841
  -18,370
  -18,950
  -19,582
  -20,266
  -21,003
  -21,793
  -22,243
  -23,146
  -24,107
  -25,129
  -26,213
  -27,361
  -28,577
  -29,863
  -31,222
  -32,656
  -34,170
  -35,766
  -37,449
  -39,222
  -41,089
  -43,055
  -45,124
  -47,302
  -49,593
  -52,002
EBITDA, $m
  -1,372
  -14,708
  -15,046
  -15,433
  -15,867
  -16,348
  -16,876
  -17,451
  -18,073
  -18,743
  -19,462
  -20,232
  -21,053
  -21,927
  -22,857
  -23,843
  -24,887
  -25,993
  -27,163
  -28,399
  -29,704
  -31,081
  -32,533
  -34,063
  -35,676
  -37,374
  -39,162
  -41,045
  -43,025
  -45,109
  -47,301
Interest expense (income), $m
  566
  498
  517
  540
  566
  596
  628
  664
  703
  746
  791
  840
  892
  948
  1,007
  1,070
  1,137
  1,208
  1,283
  1,363
  1,447
  1,535
  1,629
  1,728
  1,832
  1,941
  2,056
  2,178
  2,306
  2,440
  2,582
Earnings before tax, $m
  -3,877
  -17,064
  -17,455
  -17,904
  -18,407
  -18,965
  -19,578
  -20,246
  -20,969
  -21,748
  -22,585
  -23,083
  -24,038
  -25,055
  -26,136
  -27,283
  -28,499
  -29,786
  -31,147
  -32,585
  -34,103
  -35,706
  -37,395
  -39,177
  -41,053
  -43,030
  -45,111
  -47,302
  -49,608
  -52,033
  -54,584
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
  -17,064
  -17,455
  -17,904
  -18,407
  -18,965
  -19,578
  -20,246
  -20,969
  -21,748
  -22,585
  -23,083
  -24,038
  -25,055
  -26,136
  -27,283
  -28,499
  -29,786
  -31,147
  -32,585
  -34,103
  -35,706
  -37,395
  -39,177
  -41,053
  -43,030
  -45,111
  -47,302
  -49,608
  -52,033
  -54,584

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
  24,442
  25,004
  25,647
  26,368
  27,168
  28,045
  29,000
  30,034
  31,148
  32,343
  33,622
  34,986
  36,439
  37,983
  39,622
  41,358
  43,196
  45,140
  47,194
  49,362
  51,650
  54,063
  56,607
  59,286
  62,109
  65,080
  68,208
  71,500
  74,962
  78,605
Adjusted assets (=assets-cash), $m
  23,954
  24,442
  25,004
  25,647
  26,368
  27,168
  28,045
  29,000
  30,034
  31,148
  32,343
  33,622
  34,986
  36,439
  37,983
  39,622
  41,358
  43,196
  45,140
  47,194
  49,362
  51,650
  54,063
  56,607
  59,286
  62,109
  65,080
  68,208
  71,500
  74,962
  78,605
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
  17,983
  18,396
  18,869
  19,400
  19,988
  20,633
  21,336
  22,097
  22,916
  23,796
  24,737
  25,741
  26,809
  27,945
  29,151
  30,428
  31,781
  33,211
  34,722
  36,317
  38,001
  39,776
  41,647
  43,619
  45,695
  47,882
  50,183
  52,605
  55,152
  57,832
Working capital, $m
  1,156
  -820
  -839
  -860
  -884
  -911
  -941
  -973
  -1,007
  -1,045
  -1,085
  -1,128
  -1,173
  -1,222
  -1,274
  -1,329
  -1,387
  -1,449
  -1,514
  -1,583
  -1,656
  -1,732
  -1,813
  -1,899
  -1,988
  -2,083
  -2,183
  -2,288
  -2,398
  -2,514
  -2,636
Total debt, $m
  10,154
  10,553
  11,022
  11,557
  12,159
  12,826
  13,557
  14,354
  15,216
  16,145
  17,142
  18,209
  19,347
  20,558
  21,846
  23,213
  24,661
  26,194
  27,815
  29,527
  31,336
  33,244
  35,257
  37,378
  39,613
  41,967
  44,445
  47,054
  49,799
  52,687
  55,724
Total liabilities, $m
  19,986
  20,385
  20,854
  21,389
  21,991
  22,658
  23,389
  24,186
  25,048
  25,977
  26,974
  28,041
  29,179
  30,390
  31,678
  33,045
  34,493
  36,026
  37,647
  39,359
  41,168
  43,076
  45,089
  47,210
  49,445
  51,799
  54,277
  56,886
  59,631
  62,519
  65,556
Total equity, $m
  5,927
  4,057
  4,151
  4,257
  4,377
  4,510
  4,655
  4,814
  4,986
  5,171
  5,369
  5,581
  5,808
  6,049
  6,305
  6,577
  6,865
  7,171
  7,493
  7,834
  8,194
  8,574
  8,974
  9,397
  9,842
  10,310
  10,803
  11,323
  11,869
  12,444
  13,048
Total liabilities and equity, $m
  25,913
  24,442
  25,005
  25,646
  26,368
  27,168
  28,044
  29,000
  30,034
  31,148
  32,343
  33,622
  34,987
  36,439
  37,983
  39,622
  41,358
  43,197
  45,140
  47,193
  49,362
  51,650
  54,063
  56,607
  59,287
  62,109
  65,080
  68,209
  71,500
  74,963
  78,604
Debt-to-equity ratio
  1.713
  2.600
  2.660
  2.710
  2.780
  2.840
  2.910
  2.980
  3.050
  3.120
  3.190
  3.260
  3.330
  3.400
  3.460
  3.530
  3.590
  3.650
  3.710
  3.770
  3.820
  3.880
  3.930
  3.980
  4.030
  4.070
  4.110
  4.160
  4.200
  4.230
  4.270
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
  -17,064
  -17,455
  -17,904
  -18,407
  -18,965
  -19,578
  -20,246
  -20,969
  -21,748
  -22,585
  -23,083
  -24,038
  -25,055
  -26,136
  -27,283
  -28,499
  -29,786
  -31,147
  -32,585
  -34,103
  -35,706
  -37,395
  -39,177
  -41,053
  -43,030
  -45,111
  -47,302
  -49,608
  -52,033
  -54,584
Depreciation, amort., depletion, $m
  1,792
  1,858
  1,892
  1,930
  1,974
  2,021
  2,074
  2,131
  2,193
  2,260
  2,331
  2,011
  2,093
  2,180
  2,272
  2,370
  2,474
  2,584
  2,700
  2,823
  2,953
  3,089
  3,234
  3,386
  3,546
  3,715
  3,893
  4,080
  4,277
  4,484
  4,702
Funds from operations, $m
  1,773
  -15,206
  -15,563
  -15,973
  -16,433
  -16,944
  -17,504
  -18,115
  -18,776
  -19,489
  -20,254
  -21,072
  -21,945
  -22,875
  -23,864
  -24,913
  -26,025
  -27,202
  -28,447
  -29,762
  -31,151
  -32,616
  -34,162
  -35,791
  -37,507
  -39,315
  -41,219
  -43,222
  -45,331
  -47,549
  -49,882
Change in working capital, $m
  27
  -16
  -19
  -22
  -24
  -27
  -29
  -32
  -35
  -37
  -40
  -43
  -46
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -73
  -77
  -81
  -85
  -90
  -95
  -100
  -105
  -110
  -116
  -122
Cash from operations, $m
  1,746
  -16,629
  -15,545
  -15,952
  -16,409
  -16,917
  -17,475
  -18,083
  -18,742
  -19,451
  -20,213
  -21,029
  -21,900
  -22,827
  -23,812
  -24,858
  -25,967
  -27,140
  -28,381
  -29,693
  -31,078
  -32,539
  -34,081
  -35,705
  -37,417
  -39,220
  -41,119
  -43,117
  -45,220
  -47,433
  -49,760
Maintenance CAPEX, $m
  0
  -1,433
  -1,462
  -1,496
  -1,534
  -1,577
  -1,625
  -1,678
  -1,735
  -1,796
  -1,863
  -1,935
  -2,011
  -2,093
  -2,180
  -2,272
  -2,370
  -2,474
  -2,584
  -2,700
  -2,823
  -2,953
  -3,089
  -3,234
  -3,386
  -3,546
  -3,715
  -3,893
  -4,080
  -4,277
  -4,484
New CAPEX, $m
  -2,330
  -354
  -414
  -473
  -531
  -588
  -645
  -703
  -761
  -819
  -879
  -941
  -1,004
  -1,069
  -1,136
  -1,205
  -1,277
  -1,352
  -1,430
  -1,511
  -1,595
  -1,683
  -1,775
  -1,871
  -1,972
  -2,077
  -2,186
  -2,301
  -2,422
  -2,548
  -2,680
Cash from investing activities, $m
  -872
  -1,787
  -1,876
  -1,969
  -2,065
  -2,165
  -2,270
  -2,381
  -2,496
  -2,615
  -2,742
  -2,876
  -3,015
  -3,162
  -3,316
  -3,477
  -3,647
  -3,826
  -4,014
  -4,211
  -4,418
  -4,636
  -4,864
  -5,105
  -5,358
  -5,623
  -5,901
  -6,194
  -6,502
  -6,825
  -7,164
Free cash flow, $m
  874
  -18,416
  -17,420
  -17,920
  -18,474
  -19,083
  -19,745
  -20,463
  -21,237
  -22,067
  -22,956
  -23,905
  -24,915
  -25,988
  -27,128
  -28,336
  -29,614
  -30,966
  -32,395
  -33,904
  -35,496
  -37,175
  -38,945
  -40,810
  -42,775
  -44,843
  -47,020
  -49,311
  -51,722
  -54,257
  -56,924
Issuance/(repayment) of debt, $m
  -2,890
  399
  469
  536
  602
  667
  732
  797
  862
  929
  997
  1,067
  1,138
  1,212
  1,288
  1,366
  1,448
  1,533
  1,621
  1,713
  1,808
  1,908
  2,012
  2,121
  2,235
  2,354
  2,478
  2,609
  2,745
  2,888
  3,038
Issuance/(repurchase) of shares, $m
  2,361
  16,147
  17,045
  17,491
  17,992
  18,549
  19,160
  19,825
  20,546
  21,323
  22,158
  23,050
  24,003
  25,018
  26,096
  27,241
  28,454
  29,738
  31,097
  32,532
  34,048
  35,647
  37,334
  39,111
  40,985
  42,958
  45,035
  47,222
  49,523
  51,944
  54,491
Cash from financing (excl. dividends), $m  
  -943
  16,546
  17,514
  18,027
  18,594
  19,216
  19,892
  20,622
  21,408
  22,252
  23,155
  24,117
  25,141
  26,230
  27,384
  28,607
  29,902
  31,271
  32,718
  34,245
  35,856
  37,555
  39,346
  41,232
  43,220
  45,312
  47,513
  49,831
  52,268
  54,832
  57,529
Total cash flow (excl. dividends), $m
  -130
  -18,017
  -16,951
  -17,384
  -17,872
  -18,416
  -19,014
  -19,667
  -20,375
  -21,138
  -21,959
  -22,838
  -23,777
  -24,777
  -25,840
  -26,969
  -28,166
  -29,433
  -30,774
  -32,191
  -33,688
  -35,267
  -36,933
  -38,689
  -40,540
  -42,489
  -44,542
  -46,703
  -48,977
  -51,369
  -53,886
Retained Cash Flow (-), $m
  1,122
  -89
  -93
  -107
  -120
  -133
  -146
  -159
  -172
  -185
  -198
  -212
  -227
  -241
  -256
  -272
  -288
  -305
  -323
  -341
  -360
  -380
  -401
  -422
  -445
  -469
  -493
  -519
  -546
  -575
  -605
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
 
  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
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
 
  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
Current shareholders' claim on cash, %
  100
  46.3
  21.1
  9.6
  4.3
  2.0
  0.9
  0.4
  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

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 -6.2
Price to Sales 2
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 11.8
Price to Free Cash Flow -35.2
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 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 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 528.044 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 $20.8 billion.


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COMPANY NEWS

▶ How Devon Energy Stock Reacted to Past Earnings   [Apr-28-17 12:26PM  Market Realist]
▶ What Are Devon Energys Cash Flow Estimates?   [12:25PM  Market Realist]
▶ Can Devon Energy Beat Its 1Q17 EPS Estimates?   [12:25PM  Market Realist]
▶ BP Considers Sale of Canadian Oil Sands Assets   [Apr-20-17 02:38PM  TheStreet.com]
▶ Devon Energy Warrants Caution   [Apr-18-17 12:04PM  TheStreet.com]
▶ Stifel Turns Bullish on a Number of Oil, Gas Stocks   [Apr-13-17 09:25AM  TheStreet.com]
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▶ Final Trade: GS, WFM & more   [Apr-10-17 05:58PM  CNBC Videos]
▶ Devon Energys Ratings and Target Prices Changed   [Mar-31-17 03:35PM  Market Realist]
▶ The Biggest Texas Oil Fields Producing Today   [12:30PM  at Motley Fool]
▶ U.S. Natural Gas: Changing Dynamics   [Mar-30-17 02:57PM  Barrons.com]
▶ 3 Top Energy Stocks to Buy Now   [09:00AM  Motley Fool]
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▶ Better Buy: Apache Corp. vs. Andarko   [01:17PM  at Motley Fool]
▶ Houston LNG company secures foundation shippers for new pipeline   [Mar-17-17 06:00PM  at bizjournals.com]
▶ 3 Must-See Numbers From EOG Resources Inc's Q4 Report   [Feb-28-17 02:09PM  at Motley Fool]
▶ [$$] Devon, Anadarko Worth Digging Into   [11:14AM  at Barrons.com]
▶ [$$] EPA Chief Pruitt's Emails Show Close Ties With Oil and Gas   [Feb-23-17 09:24PM  at The Wall Street Journal]
Stock chart of DVN Financial statements 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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