Intrinsic value of Eclipse Resources - ECR

Previous Close

$2.36

  Intrinsic Value

$0.54

stock screener

  Rating & Target

str. sell

-77%

  Value-price divergence*

+25%

Previous close

$2.36

 
Intrinsic value

$0.54

 
Up/down potential

-77%

 
Rating

str. sell

 
Value-price divergence*

+25%

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

We calculate the intrinsic value of ECR 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 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -7.84
  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
  235
  376
  581
  869
  1,261
  1,778
  2,445
  3,282
  4,309
  5,545
  7,004
  8,697
  10,633
  12,816
  15,249
  17,930
  20,857
  24,025
  27,430
  31,066
  34,928
  39,009
  43,308
  47,819
  52,541
  57,473
  62,615
  67,971
  73,544
  79,338
  85,360
Variable operating expenses, $m
 
  1,920
  2,966
  4,436
  6,436
  9,081
  12,484
  16,757
  22,003
  28,312
  35,761
  44,407
  54,292
  65,440
  77,861
  91,550
  106,495
  122,673
  140,059
  158,624
  178,340
  199,183
  221,129
  244,162
  268,272
  293,455
  319,715
  347,062
  375,515
  405,099
  435,849
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
  335
  1,920
  2,966
  4,436
  6,436
  9,081
  12,484
  16,757
  22,003
  28,312
  35,761
  44,407
  54,292
  65,440
  77,861
  91,550
  106,495
  122,673
  140,059
  158,624
  178,340
  199,183
  221,129
  244,162
  268,272
  293,455
  319,715
  347,062
  375,515
  405,099
  435,849
Operating income, $m
  -100
  -1,544
  -2,385
  -3,567
  -5,176
  -7,302
  -10,039
  -13,475
  -17,694
  -22,768
  -28,757
  -35,710
  -43,659
  -52,624
  -62,612
  -73,620
  -85,638
  -98,648
  -112,629
  -127,558
  -143,413
  -160,173
  -177,821
  -196,343
  -215,731
  -235,982
  -257,099
  -279,090
  -301,971
  -325,761
  -350,488
EBITDA, $m
  -7
  -1,500
  -2,318
  -3,466
  -5,029
  -7,096
  -9,755
  -13,094
  -17,193
  -22,123
  -27,943
  -34,699
  -42,423
  -51,134
  -60,840
  -71,537
  -83,214
  -95,856
  -109,441
  -123,948
  -139,354
  -155,640
  -172,789
  -190,787
  -209,626
  -229,304
  -249,823
  -271,192
  -293,425
  -316,542
  -340,570
Interest expense (income), $m
  48
  46
  83
  135
  209
  310
  443
  615
  830
  1,094
  1,412
  1,787
  2,223
  2,721
  3,282
  3,908
  4,597
  5,350
  6,165
  7,041
  7,976
  8,969
  10,019
  11,125
  12,285
  13,499
  14,768
  16,091
  17,468
  18,901
  20,392
Earnings before tax, $m
  -203
  -1,590
  -2,468
  -3,702
  -5,385
  -7,612
  -10,482
  -14,090
  -18,524
  -23,862
  -30,169
  -37,497
  -45,882
  -55,344
  -65,894
  -77,528
  -90,235
  -103,998
  -118,794
  -134,599
  -151,389
  -169,142
  -187,840
  -207,468
  -228,016
  -249,482
  -271,867
  -295,181
  -319,439
  -344,663
  -370,880
Tax expense, $m
  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
Net income, $m
  -204
  -1,590
  -2,468
  -3,702
  -5,385
  -7,612
  -10,482
  -14,090
  -18,524
  -23,862
  -30,169
  -37,497
  -45,882
  -55,344
  -65,894
  -77,528
  -90,235
  -103,998
  -118,794
  -134,599
  -151,389
  -169,142
  -187,840
  -207,468
  -228,016
  -249,482
  -271,867
  -295,181
  -319,439
  -344,663
  -370,880

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  201
  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
  1,199
  1,600
  2,472
  3,697
  5,364
  7,568
  10,404
  13,965
  18,337
  23,595
  29,803
  37,009
  45,247
  54,537
  64,889
  76,297
  88,752
  102,235
  116,724
  132,197
  148,628
  165,998
  184,288
  203,483
  223,577
  244,564
  266,449
  289,240
  312,952
  337,608
  363,234
Adjusted assets (=assets-cash), $m
  998
  1,600
  2,472
  3,697
  5,364
  7,568
  10,404
  13,965
  18,337
  23,595
  29,803
  37,009
  45,247
  54,537
  64,889
  76,297
  88,752
  102,235
  116,724
  132,197
  148,628
  165,998
  184,288
  203,483
  223,577
  244,564
  266,449
  289,240
  312,952
  337,608
  363,234
Revenue / Adjusted assets
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
Average production assets, $m
  137
  218
  338
  505
  732
  1,033
  1,421
  1,907
  2,504
  3,222
  4,069
  5,053
  6,178
  7,446
  8,860
  10,417
  12,118
  13,959
  15,937
  18,049
  20,293
  22,665
  25,162
  27,783
  30,526
  33,392
  36,380
  39,491
  42,729
  46,095
  49,594
Working capital, $m
  118
  -133
  -205
  -307
  -445
  -628
  -863
  -1,158
  -1,521
  -1,957
  -2,472
  -3,070
  -3,753
  -4,524
  -5,383
  -6,329
  -7,362
  -8,481
  -9,683
  -10,966
  -12,329
  -13,770
  -15,288
  -16,880
  -18,547
  -20,288
  -22,103
  -23,994
  -25,961
  -28,006
  -30,132
Total debt, $m
  492
  879
  1,439
  2,227
  3,299
  4,716
  6,540
  8,830
  11,641
  15,022
  19,013
  23,647
  28,944
  34,917
  41,573
  48,909
  56,918
  65,587
  74,904
  84,852
  95,418
  106,587
  118,347
  130,690
  143,610
  157,105
  171,177
  185,831
  201,078
  216,932
  233,410
Total liabilities, $m
  642
  1,029
  1,589
  2,377
  3,449
  4,866
  6,690
  8,980
  11,791
  15,172
  19,163
  23,797
  29,094
  35,067
  41,723
  49,059
  57,068
  65,737
  75,054
  85,002
  95,568
  106,737
  118,497
  130,840
  143,760
  157,255
  171,327
  185,981
  201,228
  217,082
  233,560
Total equity, $m
  557
  571
  883
  1,320
  1,915
  2,702
  3,714
  4,986
  6,546
  8,424
  10,640
  13,212
  16,153
  19,470
  23,165
  27,238
  31,685
  36,498
  41,671
  47,194
  53,060
  59,261
  65,791
  72,644
  79,817
  87,309
  95,122
  103,259
  111,724
  120,526
  129,675
Total liabilities and equity, $m
  1,199
  1,600
  2,472
  3,697
  5,364
  7,568
  10,404
  13,966
  18,337
  23,596
  29,803
  37,009
  45,247
  54,537
  64,888
  76,297
  88,753
  102,235
  116,725
  132,196
  148,628
  165,998
  184,288
  203,484
  223,577
  244,564
  266,449
  289,240
  312,952
  337,608
  363,235
Debt-to-equity ratio
  0.883
  1.540
  1.630
  1.690
  1.720
  1.750
  1.760
  1.770
  1.780
  1.780
  1.790
  1.790
  1.790
  1.790
  1.790
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
  1.800
Adjusted equity ratio
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357
  0.357

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -204
  -1,590
  -2,468
  -3,702
  -5,385
  -7,612
  -10,482
  -14,090
  -18,524
  -23,862
  -30,169
  -37,497
  -45,882
  -55,344
  -65,894
  -77,528
  -90,235
  -103,998
  -118,794
  -134,599
  -151,389
  -169,142
  -187,840
  -207,468
  -228,016
  -249,482
  -271,867
  -295,181
  -319,439
  -344,663
  -370,880
Depreciation, amort., depletion, $m
  93
  44
  68
  101
  146
  207
  284
  381
  501
  644
  814
  1,011
  1,236
  1,489
  1,772
  2,083
  2,424
  2,792
  3,187
  3,610
  4,059
  4,533
  5,032
  5,557
  6,105
  6,678
  7,276
  7,898
  8,546
  9,219
  9,919
Funds from operations, $m
  -19
  -1,546
  -2,400
  -3,602
  -5,239
  -7,406
  -10,198
  -13,709
  -18,023
  -23,217
  -29,355
  -36,487
  -44,646
  -53,855
  -64,122
  -75,445
  -87,812
  -101,206
  -115,606
  -130,989
  -147,330
  -164,609
  -182,808
  -201,911
  -221,911
  -242,803
  -264,591
  -287,283
  -310,893
  -335,444
  -360,961
Change in working capital, $m
  -25
  -50
  -72
  -102
  -138
  -183
  -235
  -295
  -363
  -436
  -515
  -598
  -683
  -771
  -859
  -946
  -1,033
  -1,118
  -1,202
  -1,283
  -1,363
  -1,441
  -1,517
  -1,592
  -1,667
  -1,741
  -1,815
  -1,891
  -1,967
  -2,045
  -2,126
Cash from operations, $m
  6
  -1,497
  -2,328
  -3,500
  -5,100
  -7,223
  -9,963
  -13,413
  -17,660
  -22,781
  -28,841
  -35,889
  -43,963
  -53,084
  -63,263
  -74,498
  -86,779
  -100,088
  -114,404
  -129,705
  -145,967
  -163,168
  -181,291
  -200,319
  -220,244
  -241,062
  -262,776
  -285,392
  -308,926
  -333,398
  -358,835
Maintenance CAPEX, $m
  0
  -27
  -44
  -68
  -101
  -146
  -207
  -284
  -381
  -501
  -644
  -814
  -1,011
  -1,236
  -1,489
  -1,772
  -2,083
  -2,424
  -2,792
  -3,187
  -3,610
  -4,059
  -4,533
  -5,032
  -5,557
  -6,105
  -6,678
  -7,276
  -7,898
  -8,546
  -9,219
New CAPEX, $m
  -169
  -82
  -119
  -167
  -228
  -301
  -387
  -486
  -597
  -718
  -848
  -984
  -1,125
  -1,269
  -1,413
  -1,558
  -1,701
  -1,841
  -1,978
  -2,112
  -2,243
  -2,372
  -2,497
  -2,621
  -2,743
  -2,866
  -2,988
  -3,112
  -3,238
  -3,366
  -3,499
Cash from investing activities, $m
  -89
  -109
  -163
  -235
  -329
  -447
  -594
  -770
  -978
  -1,219
  -1,492
  -1,798
  -2,136
  -2,505
  -2,902
  -3,330
  -3,784
  -4,265
  -4,770
  -5,299
  -5,853
  -6,431
  -7,030
  -7,653
  -8,300
  -8,971
  -9,666
  -10,388
  -11,136
  -11,912
  -12,718
Free cash flow, $m
  -83
  -1,606
  -2,491
  -3,735
  -5,429
  -7,670
  -10,557
  -14,183
  -18,639
  -24,000
  -30,332
  -37,687
  -46,098
  -55,588
  -66,166
  -77,828
  -90,563
  -104,352
  -119,174
  -135,005
  -151,821
  -169,599
  -188,321
  -207,972
  -228,544
  -250,033
  -272,442
  -295,780
  -320,062
  -345,310
  -371,553
Issuance/(repayment) of debt, $m
  -24
  387
  561
  788
  1,072
  1,417
  1,824
  2,290
  2,811
  3,381
  3,991
  4,633
  5,297
  5,974
  6,656
  7,336
  8,008
  8,670
  9,317
  9,949
  10,566
  11,169
  11,760
  12,343
  12,920
  13,495
  14,072
  14,655
  15,247
  15,854
  16,478
Issuance/(repurchase) of shares, $m
  124
  1,805
  2,779
  4,140
  5,980
  8,399
  11,495
  15,361
  20,085
  25,739
  32,385
  40,070
  48,823
  58,661
  69,589
  81,601
  94,682
  108,811
  123,966
  140,122
  157,255
  175,343
  194,370
  214,321
  235,189
  256,974
  279,680
  303,317
  327,904
  353,465
  380,029
Cash from financing (excl. dividends), $m  
  100
  2,192
  3,340
  4,928
  7,052
  9,816
  13,319
  17,651
  22,896
  29,120
  36,376
  44,703
  54,120
  64,635
  76,245
  88,937
  102,690
  117,481
  133,283
  150,071
  167,821
  186,512
  206,130
  226,664
  248,109
  270,469
  293,752
  317,972
  343,151
  369,319
  396,507
Total cash flow (excl. dividends), $m
  17
  586
  849
  1,193
  1,623
  2,146
  2,762
  3,468
  4,257
  5,120
  6,044
  7,016
  8,022
  9,047
  10,079
  11,109
  12,128
  13,129
  14,109
  15,066
  16,000
  16,913
  17,809
  18,692
  19,565
  20,436
  21,310
  22,192
  23,090
  24,008
  24,953
Retained Cash Flow (-), $m
  64
  -1,805
  -2,779
  -4,140
  -5,980
  -8,399
  -11,495
  -15,361
  -20,085
  -25,739
  -32,385
  -40,070
  -48,823
  -58,661
  -69,589
  -81,601
  -94,682
  -108,811
  -123,966
  -140,122
  -157,255
  -175,343
  -194,370
  -214,321
  -235,189
  -256,974
  -279,680
  -303,317
  -327,904
  -353,465
  -380,029
Prev. year cash balance distribution, $m
 
  201
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -1,018
  -1,930
  -2,947
  -4,357
  -6,253
  -8,733
  -11,894
  -15,827
  -20,619
  -26,341
  -33,053
  -40,801
  -49,614
  -59,510
  -70,492
  -82,554
  -95,683
  -109,858
  -125,057
  -141,255
  -158,430
  -176,560
  -195,629
  -215,624
  -236,538
  -258,370
  -281,125
  -304,815
  -329,457
  -355,076
Discount rate, %
 
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
 
  -951
  -1,675
  -2,358
  -3,190
  -4,157
  -5,226
  -6,349
  -7,465
  -8,503
  -9,395
  -10,078
  -10,504
  -10,643
  -10,490
  -10,060
  -9,390
  -8,531
  -7,544
  -6,493
  -5,436
  -4,427
  -3,505
  -2,696
  -2,013
  -1,458
  -1,024
  -696
  -458
  -291
  -178
Current shareholders' claim on cash, %
  100
  17.8
  3.3
  0.6
  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
  0.0
  0.0

Eclipse Resources Corporation is an independent exploration and production company. The Company is engaged in the acquisition and development of oil and natural gas properties in the Appalachian Basin. The Company is the operator of the Utica Core Area and its Marcellus Project Area. The Ordovician-aged Utica Shale is an unconventional reservoir consisting of organic-rich black shale, with production occurring at vertical depths between 6,000 and 10,000 feet. The Marcellus Shale consists of organic-rich black shale, with production occurring at vertical depths between 5,000 and 8,000 feet. As of December 31, 2016, the Company had commenced drilling 202 gross wells within the Utica Core Area and three gross wells within its Marcellus Area. As of December 31, 2016, it had approximately 92,000 net acres in the Utica Shale in Eastern Ohio within the Utica Core Area. As of December 31, 2016, the Company had assembled an acreage position approximating 199,000 net acres in Eastern Ohio.

FINANCIAL RATIOS  of  Eclipse Resources (ECR)

Valuation Ratios
P/E Ratio -3
Price to Sales 2.6
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 102.5
Price to Free Cash Flow -3.8
Growth Rates
Sales Growth Rate -7.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -64.6%
Cap. Spend. - 3 Yr. Gr. Rate -7.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 88.3%
Total Debt to Equity 88.3%
Interest Coverage -3
Management Effectiveness
Return On Assets -12.6%
Ret/ On Assets - 3 Yr. Avg. -27.1%
Return On Total Capital -18.6%
Ret/ On T. Cap. - 3 Yr. Avg. -34.7%
Return On Equity -34.6%
Return On Equity - 3 Yr. Avg. -54.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 88.9%
Gross Margin - 3 Yr. Avg. 85.8%
EBITDA Margin -26.4%
EBITDA Margin - 3 Yr. Avg. -107%
Operating Margin -42.6%
Oper. Margin - 3 Yr. Avg. -171.3%
Pre-Tax Margin -86.4%
Pre-Tax Margin - 3 Yr. Avg. -192.1%
Net Profit Margin -86.8%
Net Profit Margin - 3 Yr. Avg. -200.1%
Effective Tax Rate -0.5%
Eff/ Tax Rate - 3 Yr. Avg. -19.5%
Payout Ratio 0%

ECR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECR stock intrinsic value calculation we used $235 million for the last fiscal year's total revenue generated by Eclipse Resources. The default revenue input number comes from 2016 income statement of Eclipse 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 ECR 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 7%, whose default value for ECR is calculated based on our internal credit rating of Eclipse 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 Eclipse 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 ECR stock the variable cost ratio is equal to 510.6%.

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 ECR 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 9.4% for Eclipse Resources.

Corporate tax rate of 27% is the nominal tax rate for Eclipse 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 ECR 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 ECR are equal to 58.1%.

Life of production assets of 1.5 years is the average useful life of capital assets used in Eclipse 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 ECR is equal to -35.3%. 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 - $557 million for Eclipse 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 259.268 million for Eclipse 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 Eclipse Resources at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Eclipse Resources meets 2Q profit forecasts   [Aug-04-17 02:50AM  Associated Press]
▶ Eclipse Resources drills well with a record 19K-foot lateral   [Jun-18-17 05:10PM  American City Business Journals]
▶ Eclipse Resources, Gulfport Energy lead the way as Q1 drilling rebounds in Ohio   [Jun-12-17 12:55PM  American City Business Journals]
▶ Eclipse Resources beats Street 1Q forecasts   [05:02AM  Associated Press]
▶ Eclipse Resources reports 4Q loss   [06:09PM  Associated Press]
▶ Eclipse Resources Announces Asset Divestiture   [Dec-19-16 04:10PM  Business Wire]
▶ Do Hedge Funds Love Cincinnati Bell Inc. (CBB)?   [Dec-11-16 04:54PM  at Insider Monkey]
▶ Is Brookline Bancorp, Inc. (BRKL) A Good Stock To Buy?   [Dec-10-16 10:55AM  at Insider Monkey]
▶ Should You Avoid Manitowoc Company Inc (MTW)?   [Nov-28-16 12:22PM  at Insider Monkey]
▶ The 5 Companies Dominating the Utica Shale Play   [Aug-17-16 12:00PM  at Motley Fool]
Financial statements of ECR
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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