Intrinsic value of EP Energy Cl A - EPE

Previous Close

$3.00

  Intrinsic Value

$0.60

stock screener

  Rating & Target

str. sell

-80%

  Value-price divergence*

-60%

Previous close

$3.00

 
Intrinsic value

$0.60

 
Up/down potential

-80%

 
Rating

str. sell

 
Value-price divergence*

-60%

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

We calculate the intrinsic value of EPE 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 0.8

 

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, %
  -59.80
  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
  767
  1,227
  1,896
  2,836
  4,114
  5,805
  7,980
  10,711
  14,065
  18,098
  22,859
  28,386
  34,704
  41,830
  49,770
  58,520
  68,073
  78,414
  89,528
  101,395
  113,998
  127,320
  141,349
  156,072
  171,483
  187,581
  204,366
  221,847
  240,034
  258,945
  278,601
Variable operating expenses, $m
 
  3,797
  5,866
  8,773
  12,729
  17,959
  24,690
  33,141
  43,516
  55,994
  70,725
  87,825
  107,374
  129,422
  153,987
  181,061
  210,618
  242,614
  276,999
  313,715
  352,709
  393,929
  437,333
  482,886
  530,569
  580,375
  632,309
  686,394
  742,666
  801,177
  861,991
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
  481
  3,797
  5,866
  8,773
  12,729
  17,959
  24,690
  33,141
  43,516
  55,994
  70,725
  87,825
  107,374
  129,422
  153,987
  181,061
  210,618
  242,614
  276,999
  313,715
  352,709
  393,929
  437,333
  482,886
  530,569
  580,375
  632,309
  686,394
  742,666
  801,177
  861,991
Operating income, $m
  286
  -2,570
  -3,970
  -5,938
  -8,615
  -12,155
  -16,710
  -22,429
  -29,451
  -37,897
  -47,867
  -59,439
  -72,670
  -87,592
  -104,217
  -122,541
  -142,545
  -164,200
  -187,471
  -212,321
  -238,711
  -266,609
  -295,984
  -326,814
  -359,086
  -392,794
  -427,943
  -464,547
  -502,632
  -542,231
  -583,390
EBITDA, $m
  748
  -1,834
  -2,833
  -4,237
  -6,147
  -8,673
  -11,924
  -16,005
  -21,015
  -27,042
  -34,156
  -42,414
  -51,855
  -62,503
  -74,366
  -87,441
  -101,715
  -117,167
  -133,773
  -151,505
  -170,336
  -190,243
  -211,204
  -233,203
  -256,231
  -280,284
  -305,365
  -331,485
  -358,661
  -386,918
  -416,287
Interest expense (income), $m
  0
  133
  219
  346
  524
  766
  1,086
  1,497
  2,014
  2,649
  3,412
  4,313
  5,359
  6,555
  7,904
  9,407
  11,063
  12,871
  14,828
  16,931
  19,177
  21,562
  24,084
  26,739
  29,525
  32,442
  35,489
  38,665
  41,974
  45,416
  48,995
Earnings before tax, $m
  -26
  -2,702
  -4,190
  -6,284
  -9,139
  -12,920
  -17,796
  -23,927
  -31,466
  -40,546
  -51,279
  -63,753
  -78,030
  -94,148
  -112,121
  -131,948
  -153,608
  -177,070
  -202,299
  -229,252
  -257,888
  -288,171
  -320,068
  -353,553
  -388,611
  -425,236
  -463,431
  -503,213
  -544,606
  -587,647
  -632,385
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
  -27
  -2,702
  -4,190
  -6,284
  -9,139
  -12,920
  -17,796
  -23,927
  -31,466
  -40,546
  -51,279
  -63,753
  -78,030
  -94,148
  -112,121
  -131,948
  -153,608
  -177,070
  -202,299
  -229,252
  -257,888
  -288,171
  -320,068
  -353,553
  -388,611
  -425,236
  -463,431
  -503,213
  -544,606
  -587,647
  -632,385

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  20
  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
  4,761
  7,575
  11,704
  17,503
  25,396
  35,830
  49,258
  66,119
  86,819
  111,714
  141,104
  175,220
  214,223
  258,211
  307,220
  361,236
  420,204
  484,040
  552,640
  625,893
  703,690
  785,928
  872,522
  963,406
  1,058,539
  1,157,905
  1,261,520
  1,369,425
  1,481,694
  1,598,428
  1,719,758
Adjusted assets (=assets-cash), $m
  4,741
  7,575
  11,704
  17,503
  25,396
  35,830
  49,258
  66,119
  86,819
  111,714
  141,104
  175,220
  214,223
  258,211
  307,220
  361,236
  420,204
  484,040
  552,640
  625,893
  703,690
  785,928
  872,522
  963,406
  1,058,539
  1,157,905
  1,261,520
  1,369,425
  1,481,694
  1,598,428
  1,719,758
Revenue / Adjusted assets
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
  0.162
Average production assets, $m
  4,463
  7,140
  11,031
  16,497
  23,936
  33,771
  46,427
  62,318
  81,828
  105,293
  132,993
  165,147
  201,908
  243,368
  289,559
  340,470
  396,049
  456,215
  520,872
  589,915
  663,239
  740,750
  822,366
  908,026
  997,690
  1,091,344
  1,189,003
  1,290,705
  1,396,520
  1,506,544
  1,620,899
Working capital, $m
  -73
  -148
  -229
  -343
  -498
  -702
  -966
  -1,296
  -1,702
  -2,190
  -2,766
  -3,435
  -4,199
  -5,061
  -6,022
  -7,081
  -8,237
  -9,488
  -10,833
  -12,269
  -13,794
  -15,406
  -17,103
  -18,885
  -20,749
  -22,697
  -24,728
  -26,843
  -29,044
  -31,332
  -33,711
Total debt, $m
  3,789
  6,270
  9,887
  14,967
  21,881
  31,021
  42,784
  57,554
  75,687
  97,496
  123,241
  153,126
  187,293
  225,826
  268,758
  316,076
  367,733
  423,653
  483,746
  547,917
  616,066
  688,107
  763,963
  843,578
  926,914
  1,013,959
  1,104,725
  1,199,250
  1,297,598
  1,399,857
  1,506,142
Total liabilities, $m
  4,155
  6,636
  10,253
  15,333
  22,247
  31,387
  43,150
  57,920
  76,053
  97,862
  123,607
  153,492
  187,659
  226,192
  269,124
  316,442
  368,099
  424,019
  484,112
  548,283
  616,432
  688,473
  764,329
  843,944
  927,280
  1,014,325
  1,105,091
  1,199,616
  1,297,964
  1,400,223
  1,506,508
Total equity, $m
  606
  939
  1,451
  2,170
  3,149
  4,443
  6,108
  8,199
  10,766
  13,853
  17,497
  21,727
  26,564
  32,018
  38,095
  44,793
  52,105
  60,021
  68,527
  77,611
  87,258
  97,455
  108,193
  119,462
  131,259
  143,580
  156,428
  169,809
  183,730
  198,205
  213,250
Total liabilities and equity, $m
  4,761
  7,575
  11,704
  17,503
  25,396
  35,830
  49,258
  66,119
  86,819
  111,715
  141,104
  175,219
  214,223
  258,210
  307,219
  361,235
  420,204
  484,040
  552,639
  625,894
  703,690
  785,928
  872,522
  963,406
  1,058,539
  1,157,905
  1,261,519
  1,369,425
  1,481,694
  1,598,428
  1,719,758
Debt-to-equity ratio
  6.252
  6.670
  6.810
  6.900
  6.950
  6.980
  7.000
  7.020
  7.030
  7.040
  7.040
  7.050
  7.050
  7.050
  7.050
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
  7.060
Adjusted equity ratio
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -27
  -2,702
  -4,190
  -6,284
  -9,139
  -12,920
  -17,796
  -23,927
  -31,466
  -40,546
  -51,279
  -63,753
  -78,030
  -94,148
  -112,121
  -131,948
  -153,608
  -177,070
  -202,299
  -229,252
  -257,888
  -288,171
  -320,068
  -353,553
  -388,611
  -425,236
  -463,431
  -503,213
  -544,606
  -587,647
  -632,385
Depreciation, amort., depletion, $m
  462
  736
  1,137
  1,701
  2,468
  3,482
  4,786
  6,425
  8,436
  10,855
  13,711
  17,025
  20,815
  25,089
  29,851
  35,100
  40,830
  47,032
  53,698
  60,816
  68,375
  76,366
  84,780
  93,611
  102,855
  112,510
  122,578
  133,062
  143,971
  155,314
  167,103
Funds from operations, $m
  1,557
  -1,966
  -3,052
  -4,583
  -6,671
  -9,439
  -13,009
  -17,502
  -23,030
  -29,691
  -37,568
  -46,727
  -57,215
  -69,058
  -82,270
  -96,848
  -112,778
  -130,038
  -148,601
  -168,436
  -189,513
  -211,805
  -235,288
  -259,942
  -285,757
  -312,726
  -340,854
  -370,150
  -400,635
  -432,334
  -465,282
Change in working capital, $m
  773
  -56
  -81
  -114
  -155
  -205
  -263
  -331
  -406
  -488
  -576
  -669
  -765
  -862
  -961
  -1,059
  -1,156
  -1,251
  -1,345
  -1,436
  -1,525
  -1,612
  -1,697
  -1,782
  -1,865
  -1,948
  -2,031
  -2,115
  -2,201
  -2,288
  -2,378
Cash from operations, $m
  784
  -1,911
  -2,972
  -4,469
  -6,517
  -9,234
  -12,746
  -17,172
  -22,624
  -29,203
  -36,992
  -46,059
  -56,450
  -68,196
  -81,309
  -95,789
  -111,622
  -128,787
  -147,256
  -167,000
  -187,988
  -210,193
  -233,590
  -258,161
  -283,892
  -310,778
  -338,823
  -368,035
  -398,434
  -430,045
  -462,904
Maintenance CAPEX, $m
  0
  -460
  -736
  -1,137
  -1,701
  -2,468
  -3,482
  -4,786
  -6,425
  -8,436
  -10,855
  -13,711
  -17,025
  -20,815
  -25,089
  -29,851
  -35,100
  -40,830
  -47,032
  -53,698
  -60,816
  -68,375
  -76,366
  -84,780
  -93,611
  -102,855
  -112,510
  -122,578
  -133,062
  -143,971
  -155,314
New CAPEX, $m
  -533
  -2,677
  -3,891
  -5,466
  -7,439
  -9,834
  -12,656
  -15,892
  -19,510
  -23,465
  -27,701
  -32,154
  -36,761
  -41,459
  -46,192
  -50,911
  -55,578
  -60,166
  -64,657
  -69,043
  -73,325
  -77,511
  -81,616
  -85,660
  -89,664
  -93,655
  -97,658
  -101,702
  -105,815
  -110,024
  -114,355
Cash from investing activities, $m
  -144
  -3,137
  -4,627
  -6,603
  -9,140
  -12,302
  -16,138
  -20,678
  -25,935
  -31,901
  -38,556
  -45,865
  -53,786
  -62,274
  -71,281
  -80,762
  -90,678
  -100,996
  -111,689
  -122,741
  -134,141
  -145,886
  -157,982
  -170,440
  -183,275
  -196,510
  -210,168
  -224,280
  -238,877
  -253,995
  -269,669
Free cash flow, $m
  640
  -5,048
  -7,599
  -11,072
  -15,657
  -21,536
  -28,884
  -37,850
  -48,558
  -61,103
  -75,548
  -91,923
  -110,237
  -130,470
  -152,591
  -176,551
  -202,300
  -229,783
  -258,945
  -289,741
  -322,129
  -356,079
  -391,572
  -428,600
  -467,167
  -507,288
  -548,991
  -592,315
  -637,311
  -684,040
  -732,573
Issuance/(repayment) of debt, $m
  -609
  2,481
  3,617
  5,080
  6,914
  9,140
  11,763
  14,770
  18,133
  21,809
  25,746
  29,885
  34,167
  38,533
  42,932
  47,318
  51,656
  55,920
  60,094
  64,170
  68,150
  72,041
  75,856
  79,614
  83,336
  87,045
  90,766
  94,525
  98,347
  102,259
  106,285
Issuance/(repurchase) of shares, $m
  0
  3,056
  4,702
  7,003
  10,118
  14,214
  19,461
  26,018
  34,032
  43,633
  54,923
  67,983
  82,866
  99,602
  118,199
  138,646
  160,920
  184,986
  210,805
  238,335
  267,535
  298,369
  330,805
  364,823
  400,408
  437,557
  476,280
  516,593
  558,527
  602,122
  647,430
Cash from financing (excl. dividends), $m  
  -646
  5,537
  8,319
  12,083
  17,032
  23,354
  31,224
  40,788
  52,165
  65,442
  80,669
  97,868
  117,033
  138,135
  161,131
  185,964
  212,576
  240,906
  270,899
  302,505
  335,685
  370,410
  406,661
  444,437
  483,744
  524,602
  567,046
  611,118
  656,874
  704,381
  753,715
Total cash flow (excl. dividends), $m
  -6
  489
  719
  1,011
  1,375
  1,818
  2,340
  2,938
  3,607
  4,338
  5,121
  5,945
  6,796
  7,665
  8,540
  9,412
  10,275
  11,124
  11,954
  12,765
  13,556
  14,330
  15,089
  15,837
  16,577
  17,315
  18,055
  18,803
  19,563
  20,341
  21,142
Retained Cash Flow (-), $m
  13
  -3,056
  -4,702
  -7,003
  -10,118
  -14,214
  -19,461
  -26,018
  -34,032
  -43,633
  -54,923
  -67,983
  -82,866
  -99,602
  -118,199
  -138,646
  -160,920
  -184,986
  -210,805
  -238,335
  -267,535
  -298,369
  -330,805
  -364,823
  -400,408
  -437,557
  -476,280
  -516,593
  -558,527
  -602,122
  -647,430
Prev. year cash balance distribution, $m
 
  20
  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
 
  -2,547
  -3,982
  -5,992
  -8,742
  -12,396
  -17,121
  -23,080
  -30,426
  -39,295
  -49,802
  -62,038
  -76,070
  -91,937
  -109,659
  -129,233
  -150,644
  -173,863
  -198,851
  -225,571
  -253,979
  -284,038
  -315,716
  -348,986
  -383,831
  -420,242
  -458,225
  -497,790
  -538,964
  -581,781
  -626,288
Discount rate, %
 
  14.00
  14.70
  15.44
  16.21
  17.02
  17.87
  18.76
  19.70
  20.68
  21.72
  22.80
  23.94
  25.14
  26.40
  27.72
  29.10
  30.56
  32.09
  33.69
  35.38
  37.15
  39.00
  40.95
  43.00
  45.15
  47.41
  49.78
  52.27
  54.88
  57.63
PV of cash for distribution, $m
 
  -2,234
  -3,027
  -3,896
  -4,794
  -5,650
  -6,385
  -6,926
  -7,219
  -7,236
  -6,977
  -6,476
  -5,787
  -4,980
  -4,127
  -3,293
  -2,529
  -1,868
  -1,327
  -906
  -594
  -374
  -225
  -130
  -72
  -38
  -19
  -9
  -4
  -2
  -1
Current shareholders' claim on cash, %
  100
  19.2
  3.8
  0.8
  0.2
  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

EP Energy Corporation (EP Energy) is an independent exploration and production company. The Company is engaged in the acquisition and development of unconventional onshore oil and natural gas properties in the United States. The Company operates through a base of producing assets. It is involved in the development of its drilling inventory located in three areas: the Eagle Ford Shale (South Texas), the Wolfcamp Shale (Permian Basin in West Texas) and the Altamont Field in the Uinta Basin (Northeastern Utah). As of December 31, 2016, in its operating areas, the Company had identified 5,156 drilling locations (including 639 drilling locations to which it has attributed proved undeveloped reserves). As of December 31, 2016, the Company had proved reserves of 432.4 million barrels of oil equivalent (MMBoe) and an average net daily production of 87,641 barrel of oil equivalent per day (Boe/d).

FINANCIAL RATIOS  of  EP Energy Cl A (EPE)

Valuation Ratios
P/E Ratio -28
Price to Sales 1
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 1
Price to Free Cash Flow 3
Growth Rates
Sales Growth Rate -59.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -62.8%
Cap. Spend. - 3 Yr. Gr. Rate -22.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 625.2%
Total Debt to Equity 625.2%
Interest Coverage 0
Management Effectiveness
Return On Assets -0.5%
Ret/ On Assets - 3 Yr. Avg. -13.2%
Return On Total Capital -0.5%
Ret/ On T. Cap. - 3 Yr. Avg. -14.6%
Return On Equity -4.4%
Return On Equity - 3 Yr. Avg. -45.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 57.2%
Gross Margin - 3 Yr. Avg. 73.7%
EBITDA Margin 56.8%
EBITDA Margin - 3 Yr. Avg. -17.4%
Operating Margin 37.3%
Oper. Margin - 3 Yr. Avg. -41.4%
Pre-Tax Margin -3.4%
Pre-Tax Margin - 3 Yr. Avg. -64.2%
Net Profit Margin -3.5%
Net Profit Margin - 3 Yr. Avg. -58.8%
Effective Tax Rate -3.8%
Eff/ Tax Rate - 3 Yr. Avg. 15.6%
Payout Ratio 0%

EPE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EPE stock intrinsic value calculation we used $767 million for the last fiscal year's total revenue generated by EP Energy Cl A. The default revenue input number comes from 2016 income statement of EP Energy 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 EPE 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 14%, whose default value for EPE is calculated based on our internal credit rating of EP Energy 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 EP Energy 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 EPE stock the variable cost ratio is equal to 309.4%.

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 EPE 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 3.5% for EP Energy Cl A.

Corporate tax rate of 27% is the nominal tax rate for EP Energy 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 EPE 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 EPE are equal to 581.8%.

Life of production assets of 9.7 years is the average useful life of capital assets used in EP Energy 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 EPE is equal to -12.1%. 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 - $606 million for EP Energy 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 250.78 million for EP Energy 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 EP Energy Cl A at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

▶ Is There Now An Opportunity In EP Energy Corporation (EPE)?   [Sep-13-17 09:49PM  Simply Wall St.]
▶ ETFs with exposure to EP Energy Corp. : September 7, 2017   [Sep-07-17 01:04PM  Capital Cube]
▶ How Encana Stock Has Performed This Year   [Aug-16-17 03:25PM  Market Realist]
▶ Andeavor Reports Second Quarter 2017 Results   [Aug-08-17 04:41PM  GlobeNewswire]
▶ EP Energy reports 2Q loss   [Aug-04-17 02:50AM  Associated Press]
▶ ETFs with exposure to EP Energy Corp. : July 24, 2017   [Jul-24-17 03:44PM  Capital Cube]
▶ ETFs with exposure to EP Energy Corp. : July 14, 2017   [Jul-14-17 02:14PM  Capital Cube]
▶ ETFs with exposure to EP Energy Corp. : June 15, 2017   [Jun-15-17 01:48PM  Capital Cube]
▶ EP Energy, Tesoro Form Drilling JV in Utah's Uinta Basin   [May-23-17 08:00PM  Rigzone.com]
▶ ETFs with exposure to EP Energy Corp. : May 22, 2017   [May-22-17 01:36PM  Capital Cube]
▶ ETFs with exposure to EP Energy Corp. : May 11, 2017   [May-11-17 04:36PM  Capital Cube]
▶ EP Energy reports 1Q loss   [May-05-17 10:18AM  Associated Press]
▶ EP Energy Corp. Value Analysis (NYSE:EPE) : May 2, 2017   [May-02-17 05:15PM  Capital Cube]
▶ 2 Stocks to Avoid (and 1 to Buy)   [12:00PM  Motley Fool]
▶ Betting on Oil's Turnaround? Here's Where to Put Your Money   [Apr-24-17 07:47AM  TheStreet.com]
▶ ETFs with exposure to EP Energy Corp. : April 5, 2017   [Apr-05-17 04:42PM  Capital Cube]
▶ Billionaires Love These 3 Stocks -- but Should You?   [Apr-02-17 10:17AM  Motley Fool]
▶ EP Energy reports 4Q loss   [04:44PM  Associated Press]
▶ Is EP Energy Corp (EPE) a Good Stock to Invest in?   [Dec-05-16 05:51PM  at Insider Monkey]
▶ OPEC's Production Cut Has These Stocks Rallying Again Today   [Dec-01-16 12:30PM  at Motley Fool]
Financial statements of EPE
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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