Intrinsic value of Enbridge Energy Partners Cl A - EEP

Previous Close

$16.08

  Intrinsic Value

$2.84

stock screener

  Rating & Target

str. sell

-82%

  Value-price divergence*

-61%

Previous close

$16.08

 
Intrinsic value

$2.84

 
Up/down potential

-82%

 
Rating

str. sell

 
Value-price divergence*

-61%

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

We calculate the intrinsic value of EEP 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 5.6

 

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, %
  -12.90
  11.00
  10.40
  9.86
  9.37
  8.94
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
Revenue, $m
  4,482
  4,975
  5,492
  6,034
  6,600
  7,189
  7,804
  8,443
  9,107
  9,798
  10,515
  11,261
  12,036
  12,842
  13,680
  14,551
  15,459
  16,404
  17,388
  18,414
  19,484
  20,600
  21,765
  22,982
  24,254
  25,582
  26,972
  28,425
  29,945
  31,537
  33,202
Variable operating expenses, $m
 
  2,328
  2,570
  2,824
  3,089
  3,365
  3,652
  3,951
  4,262
  4,585
  4,921
  5,270
  5,633
  6,010
  6,402
  6,810
  7,235
  7,677
  8,138
  8,618
  9,118
  9,641
  10,186
  10,756
  11,351
  11,973
  12,623
  13,303
  14,014
  14,759
  15,539
Fixed operating expenses, $m
 
  2,159
  2,213
  2,268
  2,325
  2,383
  2,442
  2,503
  2,566
  2,630
  2,696
  2,763
  2,832
  2,903
  2,976
  3,050
  3,126
  3,205
  3,285
  3,367
  3,451
  3,537
  3,626
  3,716
  3,809
  3,904
  4,002
  4,102
  4,205
  4,310
  4,417
Total operating expenses, $m
  4,154
  4,487
  4,783
  5,092
  5,414
  5,748
  6,094
  6,454
  6,828
  7,215
  7,617
  8,033
  8,465
  8,913
  9,378
  9,860
  10,361
  10,882
  11,423
  11,985
  12,569
  13,178
  13,812
  14,472
  15,160
  15,877
  16,625
  17,405
  18,219
  19,069
  19,956
Operating income, $m
  328
  488
  709
  942
  1,186
  1,442
  1,709
  1,988
  2,279
  2,582
  2,898
  3,228
  3,571
  3,929
  4,302
  4,691
  5,098
  5,522
  5,966
  6,429
  6,914
  7,422
  7,954
  8,510
  9,094
  9,705
  10,347
  11,020
  11,726
  12,468
  13,246
EBITDA, $m
  909
  1,134
  1,422
  1,725
  2,043
  2,375
  2,722
  3,084
  3,461
  3,854
  4,263
  4,689
  5,133
  5,596
  6,077
  6,580
  7,104
  7,651
  8,223
  8,820
  9,443
  10,096
  10,779
  11,493
  12,242
  13,026
  13,848
  14,709
  15,613
  16,561
  17,556
Interest expense (income), $m
  402
  414
  489
  567
  649
  735
  824
  917
  1,014
  1,114
  1,219
  1,327
  1,440
  1,557
  1,679
  1,806
  1,938
  2,075
  2,218
  2,367
  2,522
  2,684
  2,853
  3,030
  3,214
  3,406
  3,607
  3,817
  4,037
  4,267
  4,508
Earnings before tax, $m
  -40
  74
  221
  375
  537
  707
  885
  1,071
  1,265
  1,468
  1,680
  1,900
  2,131
  2,371
  2,623
  2,885
  3,160
  3,447
  3,747
  4,062
  4,392
  4,738
  5,100
  5,481
  5,880
  6,299
  6,740
  7,202
  7,689
  8,200
  8,738
Tax expense, $m
  1
  20
  60
  101
  145
  191
  239
  289
  342
  396
  453
  513
  575
  640
  708
  779
  853
  931
  1,012
  1,097
  1,186
  1,279
  1,377
  1,480
  1,588
  1,701
  1,820
  1,945
  2,076
  2,214
  2,359
Net income, $m
  -68
  54
  161
  274
  392
  516
  646
  782
  924
  1,072
  1,226
  1,387
  1,555
  1,731
  1,914
  2,106
  2,307
  2,516
  2,736
  2,965
  3,206
  3,459
  3,723
  4,001
  4,292
  4,598
  4,920
  5,258
  5,613
  5,986
  6,379

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  109
  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
  18,110
  19,980
  22,058
  24,233
  26,504
  28,873
  31,340
  33,906
  36,574
  39,348
  42,230
  45,225
  48,337
  51,573
  54,938
  58,440
  62,083
  65,878
  69,831
  73,951
  78,248
  82,731
  87,411
  92,298
  97,404
  102,740
  108,320
  114,156
  120,262
  126,653
  133,343
Adjusted assets (=assets-cash), $m
  18,001
  19,980
  22,058
  24,233
  26,504
  28,873
  31,340
  33,906
  36,574
  39,348
  42,230
  45,225
  48,337
  51,573
  54,938
  58,440
  62,083
  65,878
  69,831
  73,951
  78,248
  82,731
  87,411
  92,298
  97,404
  102,740
  108,320
  114,156
  120,262
  126,653
  133,343
Revenue / Adjusted assets
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
  0.249
Average production assets, $m
  17,337
  19,243
  21,245
  23,339
  25,527
  27,809
  30,184
  32,656
  35,226
  37,897
  40,673
  43,557
  46,555
  49,672
  52,913
  56,285
  59,795
  63,449
  67,256
  71,225
  75,363
  79,681
  84,189
  88,895
  93,813
  98,953
  104,326
  109,947
  115,828
  121,983
  128,427
Working capital, $m
  -701
  -498
  -549
  -603
  -660
  -719
  -780
  -844
  -911
  -980
  -1,052
  -1,126
  -1,204
  -1,284
  -1,368
  -1,455
  -1,546
  -1,640
  -1,739
  -1,841
  -1,948
  -2,060
  -2,177
  -2,298
  -2,425
  -2,558
  -2,697
  -2,842
  -2,995
  -3,154
  -3,320
Total debt, $m
  8,634
  10,184
  11,815
  13,523
  15,306
  17,165
  19,102
  21,116
  23,211
  25,388
  27,650
  30,001
  32,445
  34,985
  37,627
  40,375
  43,235
  46,214
  49,317
  52,552
  55,925
  59,444
  63,118
  66,954
  70,962
  75,151
  79,531
  84,112
  88,906
  93,922
  99,174
Total liabilities, $m
  14,134
  15,684
  17,315
  19,023
  20,806
  22,665
  24,602
  26,616
  28,711
  30,888
  33,150
  35,501
  37,945
  40,485
  43,127
  45,875
  48,735
  51,714
  54,817
  58,052
  61,425
  64,944
  68,618
  72,454
  76,462
  80,651
  85,031
  89,612
  94,406
  99,422
  104,674
Total equity, $m
  3,976
  4,296
  4,742
  5,210
  5,698
  6,208
  6,738
  7,290
  7,863
  8,460
  9,079
  9,723
  10,393
  11,088
  11,812
  12,564
  13,348
  14,164
  15,014
  15,900
  16,823
  17,787
  18,793
  19,844
  20,942
  22,089
  23,289
  24,544
  25,856
  27,230
  28,669
Total liabilities and equity, $m
  18,110
  19,980
  22,057
  24,233
  26,504
  28,873
  31,340
  33,906
  36,574
  39,348
  42,229
  45,224
  48,338
  51,573
  54,939
  58,439
  62,083
  65,878
  69,831
  73,952
  78,248
  82,731
  87,411
  92,298
  97,404
  102,740
  108,320
  114,156
  120,262
  126,652
  133,343
Debt-to-equity ratio
  2.172
  2.370
  2.490
  2.600
  2.690
  2.770
  2.830
  2.900
  2.950
  3.000
  3.050
  3.090
  3.120
  3.160
  3.190
  3.210
  3.240
  3.260
  3.280
  3.310
  3.320
  3.340
  3.360
  3.370
  3.390
  3.400
  3.410
  3.430
  3.440
  3.450
  3.460
Adjusted equity ratio
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -68
  54
  161
  274
  392
  516
  646
  782
  924
  1,072
  1,226
  1,387
  1,555
  1,731
  1,914
  2,106
  2,307
  2,516
  2,736
  2,965
  3,206
  3,459
  3,723
  4,001
  4,292
  4,598
  4,920
  5,258
  5,613
  5,986
  6,379
Depreciation, amort., depletion, $m
  581
  646
  713
  783
  857
  933
  1,013
  1,096
  1,182
  1,272
  1,365
  1,462
  1,562
  1,667
  1,776
  1,889
  2,007
  2,129
  2,257
  2,390
  2,529
  2,674
  2,825
  2,983
  3,148
  3,321
  3,501
  3,690
  3,887
  4,093
  4,310
Funds from operations, $m
  1,391
  699
  874
  1,057
  1,249
  1,450
  1,659
  1,878
  2,106
  2,343
  2,591
  2,849
  3,118
  3,398
  3,690
  3,995
  4,313
  4,645
  4,993
  5,356
  5,735
  6,132
  6,548
  6,984
  7,440
  7,919
  8,421
  8,947
  9,500
  10,080
  10,688
Change in working capital, $m
  -25
  -49
  -52
  -54
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -84
  -87
  -91
  -94
  -98
  -103
  -107
  -112
  -117
  -122
  -127
  -133
  -139
  -145
  -152
  -159
  -167
Cash from operations, $m
  1,416
  749
  926
  1,111
  1,305
  1,508
  1,721
  1,942
  2,172
  2,412
  2,663
  2,923
  3,195
  3,478
  3,774
  4,082
  4,404
  4,740
  5,091
  5,458
  5,842
  6,244
  6,665
  7,106
  7,568
  8,052
  8,560
  9,093
  9,652
  10,239
  10,855
Maintenance CAPEX, $m
  0
  -582
  -646
  -713
  -783
  -857
  -933
  -1,013
  -1,096
  -1,182
  -1,272
  -1,365
  -1,462
  -1,562
  -1,667
  -1,776
  -1,889
  -2,007
  -2,129
  -2,257
  -2,390
  -2,529
  -2,674
  -2,825
  -2,983
  -3,148
  -3,321
  -3,501
  -3,690
  -3,887
  -4,093
New CAPEX, $m
  -1,091
  -1,906
  -2,001
  -2,095
  -2,188
  -2,281
  -2,376
  -2,472
  -2,570
  -2,671
  -2,776
  -2,885
  -2,998
  -3,117
  -3,241
  -3,372
  -3,510
  -3,655
  -3,807
  -3,969
  -4,139
  -4,318
  -4,507
  -4,707
  -4,917
  -5,140
  -5,374
  -5,621
  -5,881
  -6,155
  -6,444
Cash from investing activities, $m
  -1,066
  -2,488
  -2,647
  -2,808
  -2,971
  -3,138
  -3,309
  -3,485
  -3,666
  -3,853
  -4,048
  -4,250
  -4,460
  -4,679
  -4,908
  -5,148
  -5,399
  -5,662
  -5,936
  -6,226
  -6,529
  -6,847
  -7,181
  -7,532
  -7,900
  -8,288
  -8,695
  -9,122
  -9,571
  -10,042
  -10,537
Free cash flow, $m
  350
  -1,739
  -1,721
  -1,697
  -1,666
  -1,629
  -1,588
  -1,543
  -1,494
  -1,441
  -1,385
  -1,326
  -1,264
  -1,200
  -1,134
  -1,065
  -994
  -921
  -846
  -767
  -687
  -603
  -516
  -426
  -333
  -236
  -135
  -29
  81
  197
  318
Issuance/(repayment) of debt, $m
  601
  1,550
  1,631
  1,707
  1,783
  1,859
  1,936
  2,015
  2,095
  2,177
  2,262
  2,351
  2,444
  2,540
  2,642
  2,748
  2,860
  2,979
  3,103
  3,235
  3,373
  3,519
  3,674
  3,836
  4,008
  4,189
  4,380
  4,581
  4,793
  5,017
  5,252
Issuance/(repurchase) of shares, $m
  0
  375
  286
  194
  96
  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 from financing (excl. dividends), $m  
  475
  1,925
  1,917
  1,901
  1,879
  1,859
  1,936
  2,015
  2,095
  2,177
  2,262
  2,351
  2,444
  2,540
  2,642
  2,748
  2,860
  2,979
  3,103
  3,235
  3,373
  3,519
  3,674
  3,836
  4,008
  4,189
  4,380
  4,581
  4,793
  5,017
  5,252
Total cash flow (excl. dividends), $m
  825
  186
  196
  205
  214
  230
  348
  472
  601
  736
  878
  1,025
  1,179
  1,340
  1,508
  1,683
  1,866
  2,057
  2,258
  2,467
  2,687
  2,916
  3,157
  3,410
  3,675
  3,953
  4,245
  4,552
  4,875
  5,213
  5,570
Retained Cash Flow (-), $m
  992
  -429
  -447
  -468
  -488
  -509
  -530
  -552
  -574
  -596
  -620
  -644
  -669
  -696
  -724
  -753
  -783
  -816
  -850
  -886
  -924
  -964
  -1,006
  -1,051
  -1,098
  -1,147
  -1,200
  -1,255
  -1,313
  -1,374
  -1,438
Prev. year cash balance distribution, $m
 
  109
  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
 
  -134
  -251
  -263
  -275
  -279
  -182
  -80
  27
  140
  258
  381
  510
  644
  784
  930
  1,083
  1,242
  1,408
  1,581
  1,763
  1,953
  2,151
  2,359
  2,577
  2,806
  3,046
  3,297
  3,562
  3,839
  4,131
Discount rate, %
 
  9.90
  10.40
  10.91
  11.46
  12.03
  12.64
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
  21.61
  22.69
  23.83
  25.02
  26.27
  27.58
  28.96
  30.41
  31.93
  33.52
  35.20
  36.96
  38.81
  40.75
PV of cash for distribution, $m
 
  -122
  -206
  -193
  -178
  -158
  -89
  -33
  10
  41
  62
  74
  78
  77
  71
  63
  54
  45
  35
  27
  20
  15
  10
  7
  4
  3
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  93.6
  89.4
  86.9
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8

Enbridge Energy Partners, L.P. owns and operates crude oil and liquid petroleum transportation and storage assets; and natural gas assets in the United States. It operates through two segments, Liquids and Natural Gas. The Liquids segment operates Lakehead system that consists of interstate common carrier crude oil and liquid petroleum pipeline, as well as storage assets, which transports crude oil and liquid petroleum from western Canada to the United States. This segment also operates North Dakota crude oil system that consists of approximately 660 miles long, has 20 pump stations, delivery points, and storage facilities with a storage capacity of approximately 1.8 million barrels; and Mid-Continent system, which includes approximately 433 miles of crude oil pipelines and 25.1 million barrels of storage capacity. This segment serves integrated oil companies, independent oil producers, and refiners and marketers. The Natural Gas segment operates natural gas and natural gas liquids (NGL) gathering and transportation pipeline systems, natural gas processing and treating facilities, and NGL fractionation facility, as well as provides trucking, rail, and liquids marketing services in east and north Texas, as well as the Texas Panhandle and western Oklahoma. This segment operates approximately 10,900 miles of natural gas and NGL gathering and transmission pipelines. This segment also offers natural gas supply, transportation, balancing, storage, and sales services. This segment serves wholesale customers, refiners and petrochemical producers, fractionators, propane distributors, and industrial customers; and various third parties, and end users. Enbridge Energy Company, Inc. operates as a general partner of Enbridge Energy Partners, L.P. The company was formerly known as Lakehead Pipe Line Partners, L.P. and changed its name to Enbridge Energy Partners, L.P. in 2001. Enbridge Energy Partners, L.P. was founded in 1991 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Enbridge Energy Partners Cl A (EEP)

Valuation Ratios
P/E Ratio -98.8
Price to Sales 1.5
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow 20.7
Growth Rates
Sales Growth Rate -12.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -48.5%
Cap. Spend. - 3 Yr. Gr. Rate -14.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 217.2%
Total Debt to Equity 217.2%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.9%
Ret/ On Assets - 3 Yr. Avg. 3.4%
Return On Total Capital -0.5%
Ret/ On T. Cap. - 3 Yr. Avg. 1.8%
Return On Equity -1.5%
Return On Equity - 3 Yr. Avg. 4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 56.7%
Gross Margin - 3 Yr. Avg. 45.6%
EBITDA Margin 21%
EBITDA Margin - 3 Yr. Avg. 22.4%
Operating Margin 7.3%
Oper. Margin - 3 Yr. Avg. 11.4%
Pre-Tax Margin -0.9%
Pre-Tax Margin - 3 Yr. Avg. 5.8%
Net Profit Margin -1.5%
Net Profit Margin - 3 Yr. Avg. 3%
Effective Tax Rate -2.5%
Eff/ Tax Rate - 3 Yr. Avg. -0%
Payout Ratio -1270.6%

EEP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EEP stock intrinsic value calculation we used $4482 million for the last fiscal year's total revenue generated by Enbridge Energy Partners Cl A. The default revenue input number comes from 2016 income statement of Enbridge Energy Partners Cl A. 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 EEP stock valuation model: a) initial revenue growth rate of 11% 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 9.9%, whose default value for EEP is calculated based on our internal credit rating of Enbridge Energy Partners Cl A, 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 Enbridge Energy Partners Cl A.
    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 EEP stock the variable cost ratio is equal to 46.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2106 million in the base year in the intrinsic value calculation for EEP 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 4.8% for Enbridge Energy Partners Cl A.

Corporate tax rate of 27% is the nominal tax rate for Enbridge Energy Partners Cl A. 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 EEP 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 EEP are equal to 386.8%.

Life of production assets of 29.8 years is the average useful life of capital assets used in Enbridge Energy Partners Cl A 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 EEP is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3976 million for Enbridge Energy Partners Cl A - 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 350.549 million for Enbridge Energy Partners Cl A 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 Enbridge Energy Partners Cl A at the current share price and the inputted number of shares is $5.6 billion.

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COMPANY NEWS

▶ EEP, ETP, PAA, GEL: What Do the Current Valuations Indicate?   [Jun-29-17 10:36AM  Market Realist]
▶ ETP, EEP, PAA, and GEL: A Leverage Analysis   [10:36AM  Market Realist]
▶ Analyzing the Yields Offered by ETP, EEP, PAA, and GEL   [Jun-27-17 10:38AM  Market Realist]
▶ Are Energy Transfer Partners Earnings Stable?   [09:09AM  Market Realist]
▶ What Were Key MLP Ratings Updates Last Week?   [Jun-19-17 03:05PM  Market Realist]
▶ 3 Large-Cap Stocks for Astute Investors   [Jun-17-17 01:09PM  Motley Fool]
▶ 3 Large-Cap Stocks for Aspiring Investors   [Jun-13-17 05:46PM  Motley Fool]
▶ Minnesota to open 22 meetings on disputed Enbridge pipeline   [Jun-03-17 10:16AM  Associated Press]
▶ Report: Lack of support a recurring problem for oil pipeline   [Jun-01-17 05:51PM  Associated Press]
▶ Energy Transfer Partners Value Compared to Its Peers   [May-19-17 12:05PM  Market Realist]
▶ Is Enbridge Energy Partners Yield Attractive?   [May-11-17 01:10PM  Market Realist]
▶ MLP Stocks: The Biggest Losers in 1Q17   [Apr-06-17 02:36PM  Market Realist]
▶ EEP on the Street: What the Analysts Are Saying   [Mar-17-17 09:05AM  Market Realist]
▶ 3 Dividend Stocks That Are Too Unsafe   [Mar-16-17 11:00AM  Motley Fool]
▶ Short Interest in EEPand What It Tells Us   [10:36AM  Market Realist]
Stock chart of EEP Financial statements of EEP Annual reports of EEP
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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