Intrinsic value of Enterprise Products Partners - EPD

Previous Close

$25.17

  Intrinsic Value

$1.91

stock screener

  Rating & Target

str. sell

-92%

  Value-price divergence*

-58%

Previous close

$25.17

 
Intrinsic value

$1.91

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence*

-58%

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

We calculate the intrinsic value of EPD 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 53.8

 

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, %
  -14.82
  46.30
  42.17
  38.45
  35.11
  32.10
  29.39
  26.95
  24.75
  22.78
  21.00
  19.40
  17.96
  16.66
  15.50
  14.45
  13.50
  12.65
  11.89
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.96
  7.67
  7.40
  7.16
  6.95
Revenue, $m
  23,022
  33,681
  47,885
  66,298
  89,573
  118,323
  153,095
  194,352
  242,462
  297,690
  360,206
  430,088
  507,334
  591,877
  683,606
  782,374
  888,020
  1,000,381
  1,119,303
  1,244,653
  1,376,325
  1,514,248
  1,658,390
  1,808,758
  1,965,403
  2,128,421
  2,297,948
  2,474,164
  2,657,292
  2,847,592
  3,045,365
Variable operating expenses, $m
 
  29,003
  40,991
  56,533
  76,178
  100,445
  129,794
  164,617
  205,223
  251,839
  304,605
  363,014
  428,213
  499,571
  576,995
  660,359
  749,530
  844,367
  944,743
  1,050,544
  1,161,681
  1,278,095
  1,399,757
  1,526,674
  1,658,890
  1,796,484
  1,939,573
  2,088,307
  2,242,875
  2,403,497
  2,570,427
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
  19,442
  29,003
  40,991
  56,533
  76,178
  100,445
  129,794
  164,617
  205,223
  251,839
  304,605
  363,014
  428,213
  499,571
  576,995
  660,359
  749,530
  844,367
  944,743
  1,050,544
  1,161,681
  1,278,095
  1,399,757
  1,526,674
  1,658,890
  1,796,484
  1,939,573
  2,088,307
  2,242,875
  2,403,497
  2,570,427
Operating income, $m
  3,581
  4,678
  6,893
  9,765
  13,395
  17,879
  23,301
  29,736
  37,238
  45,852
  55,601
  67,074
  79,121
  92,306
  106,611
  122,015
  138,491
  156,014
  174,560
  194,109
  214,644
  236,154
  258,633
  282,084
  306,513
  331,937
  358,375
  385,857
  414,416
  444,094
  474,938
EBITDA, $m
  5,133
  7,214
  10,257
  14,201
  19,186
  25,344
  32,792
  41,630
  51,934
  63,764
  77,155
  92,123
  108,669
  126,778
  146,426
  167,582
  190,211
  214,278
  239,750
  266,600
  294,804
  324,346
  355,221
  387,429
  420,982
  455,900
  492,212
  529,956
  569,182
  609,943
  652,305
Interest expense (income), $m
  948
  969
  1,538
  2,298
  3,284
  4,530
  6,069
  7,930
  10,138
  12,713
  15,669
  19,015
  22,755
  26,889
  31,414
  36,324
  41,610
  47,265
  53,279
  59,644
  66,353
  73,400
  80,782
  88,497
  96,545
  104,929
  113,654
  122,728
  132,159
  141,961
  152,146
Earnings before tax, $m
  2,576
  3,709
  5,355
  7,466
  10,111
  13,349
  17,233
  21,806
  27,101
  33,139
  39,933
  48,059
  56,366
  65,416
  75,197
  85,691
  96,880
  108,749
  121,282
  134,465
  148,291
  162,754
  177,851
  193,587
  209,968
  227,007
  244,721
  263,129
  282,257
  302,134
  322,792
Tax expense, $m
  23
  1,001
  1,446
  2,016
  2,730
  3,604
  4,653
  5,888
  7,317
  8,947
  10,782
  12,976
  15,219
  17,662
  20,303
  23,136
  26,158
  29,362
  32,746
  36,306
  40,039
  43,943
  48,020
  52,268
  56,691
  61,292
  66,075
  71,045
  76,209
  81,576
  87,154
Net income, $m
  2,513
  2,708
  3,909
  5,450
  7,381
  9,745
  12,580
  15,918
  19,783
  24,191
  29,151
  35,083
  41,147
  47,754
  54,894
  62,554
  70,723
  79,387
  88,536
  98,160
  108,253
  118,810
  129,831
  141,318
  153,277
  165,715
  178,646
  192,084
  206,048
  220,558
  235,638

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  63
  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
  52,194
  76,202
  108,336
  149,995
  202,654
  267,700
  346,370
  439,711
  548,556
  673,507
  814,947
  973,050
  1,147,813
  1,339,089
  1,546,620
  1,770,077
  2,009,096
  2,263,306
  2,532,361
  2,815,958
  3,113,858
  3,425,902
  3,752,013
  4,092,212
  4,446,614
  4,815,432
  5,198,977
  5,597,657
  6,011,972
  6,442,515
  6,889,966
Adjusted assets (=assets-cash), $m
  52,131
  76,202
  108,336
  149,995
  202,654
  267,700
  346,370
  439,711
  548,556
  673,507
  814,947
  973,050
  1,147,813
  1,339,089
  1,546,620
  1,770,077
  2,009,096
  2,263,306
  2,532,361
  2,815,958
  3,113,858
  3,425,902
  3,752,013
  4,092,212
  4,446,614
  4,815,432
  5,198,977
  5,597,657
  6,011,972
  6,442,515
  6,889,966
Revenue / Adjusted assets
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
  0.442
Average production assets, $m
  36,614
  53,553
  76,136
  105,413
  142,421
  188,134
  243,422
  309,020
  385,514
  473,327
  572,728
  683,840
  806,660
  941,085
  1,086,933
  1,243,975
  1,411,952
  1,590,606
  1,779,692
  1,978,999
  2,188,357
  2,407,655
  2,636,840
  2,875,925
  3,124,991
  3,384,189
  3,653,737
  3,933,921
  4,225,094
  4,527,671
  4,842,130
Working capital, $m
  -1,723
  1,145
  1,628
  2,254
  3,045
  4,023
  5,205
  6,608
  8,244
  10,121
  12,247
  14,623
  17,249
  20,124
  23,243
  26,601
  30,193
  34,013
  38,056
  42,318
  46,795
  51,484
  56,385
  61,498
  66,824
  72,366
  78,130
  84,122
  90,348
  96,818
  103,542
Total debt, $m
  23,698
  37,519
  56,061
  80,098
  110,482
  148,014
  193,406
  247,264
  310,068
  382,165
  463,775
  555,001
  655,839
  766,205
  885,951
  1,014,885
  1,152,799
  1,299,479
  1,454,723
  1,618,358
  1,790,247
  1,970,296
  2,158,463
  2,354,757
  2,559,247
  2,772,055
  2,993,361
  3,223,399
  3,462,459
  3,710,882
  3,969,061
Total liabilities, $m
  30,147
  43,968
  62,510
  86,547
  116,931
  154,463
  199,855
  253,713
  316,517
  388,614
  470,224
  561,450
  662,288
  772,654
  892,400
  1,021,334
  1,159,248
  1,305,928
  1,461,172
  1,624,807
  1,796,696
  1,976,745
  2,164,912
  2,361,206
  2,565,696
  2,778,504
  2,999,810
  3,229,848
  3,468,908
  3,717,331
  3,975,510
Total equity, $m
  22,047
  32,233
  45,826
  63,448
  85,723
  113,237
  146,514
  185,998
  232,039
  284,894
  344,723
  411,600
  485,525
  566,435
  654,220
  748,743
  849,848
  957,379
  1,071,189
  1,191,150
  1,317,162
  1,449,156
  1,587,102
  1,731,006
  1,880,918
  2,036,928
  2,199,167
  2,367,809
  2,543,064
  2,725,184
  2,914,456
Total liabilities and equity, $m
  52,194
  76,201
  108,336
  149,995
  202,654
  267,700
  346,369
  439,711
  548,556
  673,508
  814,947
  973,050
  1,147,813
  1,339,089
  1,546,620
  1,770,077
  2,009,096
  2,263,307
  2,532,361
  2,815,957
  3,113,858
  3,425,901
  3,752,014
  4,092,212
  4,446,614
  4,815,432
  5,198,977
  5,597,657
  6,011,972
  6,442,515
  6,889,966
Debt-to-equity ratio
  1.075
  1.160
  1.220
  1.260
  1.290
  1.310
  1.320
  1.330
  1.340
  1.340
  1.350
  1.350
  1.350
  1.350
  1.350
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
  1.360
Adjusted equity ratio
  0.422
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,513
  2,708
  3,909
  5,450
  7,381
  9,745
  12,580
  15,918
  19,783
  24,191
  29,151
  35,083
  41,147
  47,754
  54,894
  62,554
  70,723
  79,387
  88,536
  98,160
  108,253
  118,810
  129,831
  141,318
  153,277
  165,715
  178,646
  192,084
  206,048
  220,558
  235,638
Depreciation, amort., depletion, $m
  1,552
  2,536
  3,363
  4,436
  5,791
  7,466
  9,491
  11,894
  14,696
  17,912
  21,554
  25,049
  29,548
  34,472
  39,814
  45,567
  51,720
  58,264
  65,190
  72,491
  80,160
  88,192
  96,588
  105,345
  114,469
  123,963
  133,837
  144,100
  154,765
  165,849
  177,367
Funds from operations, $m
  3,883
  5,244
  7,273
  9,886
  13,172
  17,210
  22,071
  27,812
  34,479
  42,104
  50,704
  60,132
  70,695
  82,226
  94,708
  108,121
  122,443
  137,651
  153,726
  170,651
  188,412
  207,003
  226,419
  246,664
  267,745
  289,678
  312,483
  336,184
  360,813
  386,406
  413,005
Change in working capital, $m
  -184
  362
  483
  626
  791
  978
  1,182
  1,403
  1,636
  1,878
  2,126
  2,376
  2,626
  2,874
  3,119
  3,358
  3,592
  3,820
  4,043
  4,262
  4,477
  4,689
  4,901
  5,113
  5,326
  5,543
  5,764
  5,991
  6,226
  6,470
  6,724
Cash from operations, $m
  4,067
  4,881
  6,790
  9,260
  12,381
  16,233
  20,889
  26,410
  32,844
  40,226
  48,579
  57,756
  68,069
  79,351
  91,589
  104,763
  118,851
  133,831
  149,682
  166,389
  183,935
  202,313
  221,518
  241,551
  262,419
  284,136
  306,719
  330,192
  354,587
  379,936
  406,281
Maintenance CAPEX, $m
  0
  -1,341
  -1,962
  -2,789
  -3,861
  -5,217
  -6,891
  -8,917
  -11,319
  -14,121
  -17,338
  -20,979
  -25,049
  -29,548
  -34,472
  -39,814
  -45,567
  -51,720
  -58,264
  -65,190
  -72,491
  -80,160
  -88,192
  -96,588
  -105,345
  -114,469
  -123,963
  -133,837
  -144,100
  -154,765
  -165,849
New CAPEX, $m
  -3,025
  -16,939
  -22,583
  -29,277
  -37,008
  -45,713
  -55,287
  -65,599
  -76,494
  -87,813
  -99,401
  -111,112
  -122,820
  -134,425
  -145,848
  -157,041
  -167,978
  -178,654
  -189,086
  -199,306
  -209,359
  -219,298
  -229,185
  -239,085
  -249,066
  -259,198
  -269,548
  -280,184
  -291,172
  -302,577
  -314,460
Cash from investing activities, $m
  -4,344
  -18,280
  -24,545
  -32,066
  -40,869
  -50,930
  -62,178
  -74,516
  -87,813
  -101,934
  -116,739
  -132,091
  -147,869
  -163,973
  -180,320
  -196,855
  -213,545
  -230,374
  -247,350
  -264,496
  -281,850
  -299,458
  -317,377
  -335,673
  -354,411
  -373,667
  -393,511
  -414,021
  -435,272
  -457,342
  -480,309
Free cash flow, $m
  -277
  -13,399
  -17,755
  -22,805
  -28,489
  -34,697
  -41,290
  -48,106
  -54,970
  -61,709
  -68,160
  -74,334
  -79,801
  -84,621
  -88,731
  -92,093
  -94,694
  -96,543
  -97,668
  -98,108
  -97,914
  -97,144
  -95,859
  -94,121
  -91,992
  -89,531
  -86,792
  -83,828
  -80,686
  -77,406
  -74,027
Issuance/(repayment) of debt, $m
  1,141
  13,884
  18,541
  24,037
  30,385
  37,531
  45,392
  53,858
  62,803
  72,097
  81,611
  91,225
  100,839
  110,366
  119,745
  128,935
  137,914
  146,679
  155,244
  163,635
  171,889
  180,049
  188,166
  196,295
  204,490
  212,808
  221,306
  230,038
  239,060
  248,423
  258,179
Issuance/(repurchase) of shares, $m
  2,543
  7,479
  9,684
  12,171
  14,894
  17,770
  20,697
  23,565
  26,258
  28,663
  30,678
  31,794
  32,778
  33,156
  32,892
  31,968
  30,382
  28,144
  25,274
  21,802
  17,759
  13,184
  8,114
  2,586
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  3,623
  21,363
  28,225
  36,208
  45,279
  55,301
  66,089
  77,423
  89,061
  100,760
  112,289
  123,019
  133,617
  143,522
  152,637
  160,903
  168,296
  174,823
  180,518
  185,437
  189,648
  193,233
  196,280
  198,881
  204,490
  212,808
  221,306
  230,038
  239,060
  248,423
  258,179
Total cash flow (excl. dividends), $m
  3,345
  7,964
  10,470
  13,403
  16,790
  20,604
  24,800
  29,318
  34,092
  39,051
  44,129
  48,685
  53,816
  58,900
  63,906
  68,810
  73,602
  78,280
  82,851
  87,329
  91,734
  96,089
  100,421
  104,759
  112,498
  123,277
  134,513
  146,210
  158,374
  171,017
  184,152
Retained Cash Flow (-), $m
  -1,752
  -10,186
  -13,593
  -17,622
  -22,275
  -27,514
  -33,277
  -39,483
  -46,041
  -52,855
  -59,829
  -66,878
  -73,925
  -80,910
  -87,786
  -94,522
  -101,105
  -107,531
  -113,810
  -119,961
  -126,012
  -131,994
  -137,945
  -143,904
  -149,912
  -156,010
  -162,240
  -168,642
  -175,255
  -182,120
  -189,272
Prev. year cash balance 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
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -2,222
  -3,123
  -4,219
  -5,485
  -6,910
  -8,478
  -10,166
  -11,950
  -13,803
  -15,700
  -18,192
  -20,109
  -22,009
  -23,880
  -25,712
  -27,503
  -29,251
  -30,959
  -32,632
  -34,278
  -35,905
  -37,524
  -39,145
  -37,414
  -32,733
  -27,726
  -22,432
  -16,881
  -11,103
  -5,120
Discount rate, %
 
  8.30
  8.72
  9.15
  9.61
  10.09
  10.59
  11.12
  11.68
  12.26
  12.88
  13.52
  14.20
  14.91
  15.65
  16.43
  17.26
  18.12
  19.02
  19.97
  20.97
  22.02
  23.12
  24.28
  25.49
  26.77
  28.11
  29.51
  30.99
  32.54
  34.16
PV of cash for distribution, $m
 
  -2,052
  -2,642
  -3,244
  -3,800
  -4,273
  -4,633
  -4,859
  -4,938
  -4,874
  -4,676
  -4,509
  -4,089
  -3,615
  -3,118
  -2,624
  -2,154
  -1,725
  -1,347
  -1,025
  -761
  -549
  -386
  -264
  -161
  -87
  -44
  -21
  -9
  -3
  -1
Current shareholders' claim on cash, %
  100
  87.8
  78.2
  70.5
  64.3
  59.3
  55.2
  51.8
  48.9
  46.6
  44.6
  43.0
  41.6
  40.5
  39.5
  38.8
  38.1
  37.6
  37.2
  36.9
  36.7
  36.5
  36.5
  36.4
  36.4
  36.4
  36.4
  36.4
  36.4
  36.4
  36.4

Enterprise Products Partners L.P., a master limited partnership, provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. The company operates through NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services segments. The NGL Pipelines & Services segment provides natural gas processing and related NGL marketing services, as well as NGL export docks and related services. It operates approximately 19,500 miles of NGL pipelines; NGL and related product storage facilities; 15 NGL fractionators; and a liquefied petroleum gas export terminal and NGL import facility. The Crude Oil Pipelines & Services segment operates approximately 5,400 miles of crude oil pipelines and related operations; and crude oil storage and marine terminals located in Oklahoma and Texas, as well as a fleet of 478 tractor-trailer tank trucks used to transport crude oil. It also engages in crude oil marketing activities. The Natural Gas Pipelines & Services segment operates approximately 19,100 miles of natural gas pipeline systems to gather and transport natural gas in Colorado, Louisiana, New Mexico, Texas, and Wyoming. It leases underground salt dome natural gas storage facilities in Texas and Louisiana; owns an underground salt dome storage cavern in Texas; and markets natural gas. The Petrochemical & Refined Products Services segment operates propylene fractionation and related operations, including 674 miles of pipelines; butane isomerization complex, associated deisobutanizer units, and related pipeline assets; and octane enhancement and high purity isobutylene production facilities. It also operates refined products pipelines of approximately 4,200 miles; and terminals, as well as provides refined products marketing and marine transportation services. The company was founded in 1968 and is based in Houston, Texas.

FINANCIAL RATIOS  of  Enterprise Products Partners (EPD)

Valuation Ratios
P/E Ratio 21.2
Price to Sales 2.3
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 13.1
Price to Free Cash Flow 51.2
Growth Rates
Sales Growth Rate -14.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21%
Cap. Spend. - 3 Yr. Gr. Rate -2.4%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 95.8%
Total Debt to Equity 107.5%
Interest Coverage 4
Management Effectiveness
Return On Assets 6.8%
Ret/ On Assets - 3 Yr. Avg. 7.4%
Return On Total Capital 5.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6.5%
Return On Equity 11.9%
Return On Equity - 3 Yr. Avg. 13.9%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 14.7%
Gross Margin - 3 Yr. Avg. 11.6%
EBITDA Margin 22%
EBITDA Margin - 3 Yr. Avg. 17%
Operating Margin 15.6%
Oper. Margin - 3 Yr. Avg. 12.2%
Pre-Tax Margin 11.2%
Pre-Tax Margin - 3 Yr. Avg. 8.9%
Net Profit Margin 10.9%
Net Profit Margin - 3 Yr. Avg. 8.7%
Effective Tax Rate 0.9%
Eff/ Tax Rate - 3 Yr. Avg. 0.5%
Payout Ratio 131.4%

EPD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EPD stock intrinsic value calculation we used $23022 million for the last fiscal year's total revenue generated by Enterprise Products Partners. The default revenue input number comes from 2016 income statement of Enterprise Products Partners. 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 EPD stock valuation model: a) initial revenue growth rate of 46.3% 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 8.3%, whose default value for EPD is calculated based on our internal credit rating of Enterprise Products Partners, 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 Enterprise Products Partners.
    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 EPD stock the variable cost ratio is equal to 86.9%.

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 EPD 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 4.1% for Enterprise Products Partners.

Corporate tax rate of 27% is the nominal tax rate for Enterprise Products Partners. 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 EPD 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 EPD are equal to 159%.

Life of production assets of 27.3 years is the average useful life of capital assets used in Enterprise Products Partners 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 EPD is equal to 3.4%. 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 - $22047 million for Enterprise Products Partners - 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 2138.52 million for Enterprise Products Partners 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 Enterprise Products Partners at the current share price and the inputted number of shares is $53.8 billion.

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Stock chart of EPD Financial statements of EPD
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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