Intrinsic value of EP Energy Cl A - EPE

Previous Close

$3.51

  Intrinsic Value

$0.62

stock screener

  Rating & Target

str. sell

-82%

  Value-price divergence*

-67%

Previous close

$3.51

 
Intrinsic value

$0.62

 
Up/down potential

-82%

 
Rating

str. sell

 
Value-price divergence*

-67%

*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 0.9

 

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
  46.00
  41.90
  38.21
  34.89
  31.90
  29.21
  26.79
  24.61
  22.65
  20.88
  19.30
  17.87
  16.58
  15.42
  14.38
  13.44
  12.60
  11.84
  11.15
  10.54
  9.98
  9.49
  9.04
  8.63
  8.27
  7.94
  7.65
  7.38
  7.15
  6.93
Revenue, $m
  767
  1,120
  1,589
  2,196
  2,962
  3,907
  5,049
  6,401
  7,977
  9,783
  11,827
  14,109
  16,629
  19,386
  22,376
  25,594
  29,034
  32,691
  36,561
  40,639
  44,922
  49,407
  54,094
  58,983
  64,075
  69,374
  74,885
  80,613
  86,566
  92,751
  99,180
Variable operating expenses, $m
 
  3,465
  4,916
  6,795
  9,166
  12,090
  15,621
  19,806
  24,680
  30,270
  36,591
  43,652
  51,451
  59,981
  69,231
  79,186
  89,830
  101,147
  113,120
  125,737
  138,988
  152,865
  167,367
  182,492
  198,248
  214,644
  231,694
  249,417
  267,834
  286,973
  306,863
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
  3,465
  4,916
  6,795
  9,166
  12,090
  15,621
  19,806
  24,680
  30,270
  36,591
  43,652
  51,451
  59,981
  69,231
  79,186
  89,830
  101,147
  113,120
  125,737
  138,988
  152,865
  167,367
  182,492
  198,248
  214,644
  231,694
  249,417
  267,834
  286,973
  306,863
Operating income, $m
  286
  -2,345
  -3,327
  -4,599
  -6,203
  -8,182
  -10,572
  -13,404
  -16,703
  -20,486
  -24,765
  -29,543
  -34,822
  -40,595
  -46,855
  -53,593
  -60,797
  -68,455
  -76,559
  -85,098
  -94,066
  -103,458
  -113,273
  -123,510
  -134,173
  -145,270
  -156,809
  -168,804
  -181,268
  -194,221
  -207,683
EBITDA, $m
  748
  -1,693
  -2,403
  -3,321
  -4,480
  -5,909
  -7,635
  -9,680
  -12,062
  -14,794
  -17,884
  -21,335
  -25,147
  -29,316
  -33,837
  -38,703
  -43,905
  -49,436
  -55,288
  -61,454
  -67,931
  -74,713
  -81,801
  -89,194
  -96,894
  -104,908
  -113,241
  -121,903
  -130,905
  -140,259
  -149,980
Interest expense (income), $m
  0
  133
  200
  289
  404
  549
  729
  945
  1,202
  1,501
  1,844
  2,232
  2,665
  3,143
  3,666
  4,234
  4,844
  5,497
  6,191
  6,926
  7,700
  8,513
  9,364
  10,253
  11,181
  12,148
  13,153
  14,199
  15,286
  16,416
  17,590
Earnings before tax, $m
  -26
  -2,478
  -3,527
  -4,888
  -6,607
  -8,732
  -11,301
  -14,350
  -17,905
  -21,987
  -26,609
  -31,775
  -37,486
  -43,738
  -50,522
  -57,827
  -65,641
  -73,953
  -82,750
  -92,024
  -101,766
  -111,971
  -122,636
  -133,763
  -145,354
  -157,418
  -169,963
  -183,003
  -196,555
  -210,637
  -225,273
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
  -2,478
  -3,527
  -4,888
  -6,607
  -8,732
  -11,301
  -14,350
  -17,905
  -21,987
  -26,609
  -31,775
  -37,486
  -43,738
  -50,522
  -57,827
  -65,641
  -73,953
  -82,750
  -92,024
  -101,766
  -111,971
  -122,636
  -133,763
  -145,354
  -157,418
  -169,963
  -183,003
  -196,555
  -210,637
  -225,273

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
  6,955
  9,870
  13,641
  18,400
  24,270
  31,359
  39,760
  49,545
  60,766
  73,457
  87,631
  103,287
  120,412
  138,981
  158,966
  180,334
  203,051
  227,087
  252,416
  279,017
  306,876
  335,987
  366,352
  397,982
  430,897
  465,125
  500,702
  537,675
  576,096
  616,026
Adjusted assets (=assets-cash), $m
  4,741
  6,955
  9,870
  13,641
  18,400
  24,270
  31,359
  39,760
  49,545
  60,766
  73,457
  87,631
  103,287
  120,412
  138,981
  158,966
  180,334
  203,051
  227,087
  252,416
  279,017
  306,876
  335,987
  366,352
  397,982
  430,897
  465,125
  500,702
  537,675
  576,096
  616,026
Revenue / Adjusted assets
  0.162
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
Average production assets, $m
  4,463
  6,515
  9,245
  12,777
  17,235
  22,733
  29,374
  37,243
  46,408
  56,920
  68,807
  82,084
  96,749
  112,790
  130,184
  148,903
  168,918
  190,197
  212,712
  236,438
  261,355
  287,450
  314,718
  343,161
  372,789
  403,620
  435,681
  469,007
  503,639
  539,628
  577,030
Working capital, $m
  -73
  -112
  -159
  -220
  -296
  -391
  -505
  -640
  -798
  -978
  -1,183
  -1,411
  -1,663
  -1,939
  -2,238
  -2,559
  -2,903
  -3,269
  -3,656
  -4,064
  -4,492
  -4,941
  -5,409
  -5,898
  -6,408
  -6,937
  -7,489
  -8,061
  -8,657
  -9,275
  -9,918
Total debt, $m
  3,789
  5,706
  8,250
  11,543
  15,697
  20,822
  27,010
  34,344
  42,887
  52,683
  63,762
  76,136
  89,804
  104,754
  120,965
  138,411
  157,065
  176,897
  197,881
  219,994
  243,216
  267,537
  292,951
  319,459
  347,072
  375,807
  405,688
  436,747
  469,024
  502,565
  537,424
Total liabilities, $m
  4,155
  6,072
  8,616
  11,909
  16,063
  21,188
  27,376
  34,710
  43,253
  53,049
  64,128
  76,502
  90,170
  105,120
  121,331
  138,777
  157,431
  177,263
  198,247
  220,360
  243,582
  267,903
  293,317
  319,825
  347,438
  376,173
  406,054
  437,113
  469,390
  502,931
  537,790
Total equity, $m
  606
  883
  1,253
  1,732
  2,337
  3,082
  3,983
  5,049
  6,292
  7,717
  9,329
  11,129
  13,117
  15,292
  17,651
  20,189
  22,902
  25,787
  28,840
  32,057
  35,435
  38,973
  42,670
  46,527
  50,544
  54,724
  59,071
  63,589
  68,285
  73,164
  78,235
Total liabilities and equity, $m
  4,761
  6,955
  9,869
  13,641
  18,400
  24,270
  31,359
  39,759
  49,545
  60,766
  73,457
  87,631
  103,287
  120,412
  138,982
  158,966
  180,333
  203,050
  227,087
  252,417
  279,017
  306,876
  335,987
  366,352
  397,982
  430,897
  465,125
  500,702
  537,675
  576,095
  616,025
Debt-to-equity ratio
  6.252
  6.460
  6.580
  6.660
  6.720
  6.760
  6.780
  6.800
  6.820
  6.830
  6.830
  6.840
  6.850
  6.850
  6.850
  6.860
  6.860
  6.860
  6.860
  6.860
  6.860
  6.860
  6.870
  6.870
  6.870
  6.870
  6.870
  6.870
  6.870
  6.870
  6.870
Adjusted equity ratio
  0.124
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127
  0.127

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -27
  -2,478
  -3,527
  -4,888
  -6,607
  -8,732
  -11,301
  -14,350
  -17,905
  -21,987
  -26,609
  -31,775
  -37,486
  -43,738
  -50,522
  -57,827
  -65,641
  -73,953
  -82,750
  -92,024
  -101,766
  -111,971
  -122,636
  -133,763
  -145,354
  -157,418
  -169,963
  -183,003
  -196,555
  -210,637
  -225,273
Depreciation, amort., depletion, $m
  462
  652
  924
  1,278
  1,724
  2,273
  2,937
  3,724
  4,641
  5,692
  6,881
  8,208
  9,675
  11,279
  13,018
  14,890
  16,892
  19,020
  21,271
  23,644
  26,135
  28,745
  31,472
  34,316
  37,279
  40,362
  43,568
  46,901
  50,364
  53,963
  57,703
Funds from operations, $m
  1,557
  -1,826
  -2,603
  -3,610
  -4,884
  -6,458
  -8,364
  -10,625
  -13,264
  -16,295
  -19,728
  -23,567
  -27,811
  -32,459
  -37,503
  -42,936
  -48,749
  -54,933
  -61,479
  -68,380
  -75,630
  -83,226
  -91,165
  -99,447
  -108,075
  -117,056
  -126,394
  -136,102
  -146,191
  -156,675
  -167,570
Change in working capital, $m
  773
  -35
  -47
  -61
  -77
  -95
  -114
  -135
  -158
  -181
  -204
  -228
  -252
  -276
  -299
  -322
  -344
  -366
  -387
  -408
  -428
  -449
  -469
  -489
  -509
  -530
  -551
  -573
  -595
  -619
  -643
Cash from operations, $m
  784
  -1,791
  -2,556
  -3,549
  -4,807
  -6,364
  -8,249
  -10,490
  -13,107
  -16,115
  -19,524
  -23,338
  -27,559
  -32,183
  -37,204
  -42,615
  -48,405
  -54,567
  -61,092
  -67,972
  -75,202
  -82,777
  -90,696
  -98,958
  -107,566
  -116,526
  -125,843
  -135,529
  -145,595
  -156,056
  -166,927
Maintenance CAPEX, $m
  0
  -446
  -652
  -924
  -1,278
  -1,724
  -2,273
  -2,937
  -3,724
  -4,641
  -5,692
  -6,881
  -8,208
  -9,675
  -11,279
  -13,018
  -14,890
  -16,892
  -19,020
  -21,271
  -23,644
  -26,135
  -28,745
  -31,472
  -34,316
  -37,279
  -40,362
  -43,568
  -46,901
  -50,364
  -53,963
New CAPEX, $m
  -533
  -2,053
  -2,730
  -3,532
  -4,458
  -5,498
  -6,640
  -7,869
  -9,166
  -10,511
  -11,887
  -13,277
  -14,665
  -16,041
  -17,394
  -18,720
  -20,015
  -21,279
  -22,515
  -23,726
  -24,917
  -26,095
  -27,268
  -28,443
  -29,628
  -30,831
  -32,061
  -33,325
  -34,632
  -35,989
  -37,402
Cash from investing activities, $m
  -144
  -2,499
  -3,382
  -4,456
  -5,736
  -7,222
  -8,913
  -10,806
  -12,890
  -15,152
  -17,579
  -20,158
  -22,873
  -25,716
  -28,673
  -31,738
  -34,905
  -38,171
  -41,535
  -44,997
  -48,561
  -52,230
  -56,013
  -59,915
  -63,944
  -68,110
  -72,423
  -76,893
  -81,533
  -86,353
  -91,365
Free cash flow, $m
  640
  -4,290
  -5,937
  -8,006
  -10,543
  -13,585
  -17,163
  -21,297
  -25,997
  -31,267
  -37,103
  -43,496
  -50,433
  -57,899
  -65,877
  -74,353
  -83,310
  -92,738
  -102,627
  -112,969
  -123,763
  -135,008
  -146,709
  -158,873
  -171,510
  -184,636
  -198,267
  -212,423
  -227,128
  -242,408
  -258,292
Issuance/(repayment) of debt, $m
  -609
  1,917
  2,544
  3,292
  4,155
  5,124
  6,189
  7,334
  8,542
  9,796
  11,079
  12,374
  13,668
  14,950
  16,211
  17,447
  18,654
  19,832
  20,984
  22,112
  23,223
  24,321
  25,414
  26,509
  27,613
  28,735
  29,881
  31,059
  32,277
  33,541
  34,859
Issuance/(repurchase) of shares, $m
  0
  2,755
  3,897
  5,367
  7,212
  9,477
  12,201
  15,417
  19,148
  23,413
  28,220
  33,575
  39,475
  45,913
  52,880
  60,365
  68,355
  76,838
  85,803
  95,241
  105,144
  115,509
  126,333
  137,619
  149,371
  161,598
  174,310
  187,521
  201,250
  215,517
  230,344
Cash from financing (excl. dividends), $m  
  -646
  4,672
  6,441
  8,659
  11,367
  14,601
  18,390
  22,751
  27,690
  33,209
  39,299
  45,949
  53,143
  60,863
  69,091
  77,812
  87,009
  96,670
  106,787
  117,353
  128,367
  139,830
  151,747
  164,128
  176,984
  190,333
  204,191
  218,580
  233,527
  249,058
  265,203
Total cash flow (excl. dividends), $m
  -6
  382
  504
  653
  824
  1,016
  1,227
  1,454
  1,693
  1,942
  2,196
  2,453
  2,710
  2,964
  3,214
  3,459
  3,698
  3,932
  4,160
  4,384
  4,604
  4,822
  5,038
  5,255
  5,474
  5,697
  5,924
  6,157
  6,399
  6,650
  6,911
Retained Cash Flow (-), $m
  13
  -2,755
  -3,897
  -5,367
  -7,212
  -9,477
  -12,201
  -15,417
  -19,148
  -23,413
  -28,220
  -33,575
  -39,475
  -45,913
  -52,880
  -60,365
  -68,355
  -76,838
  -85,803
  -95,241
  -105,144
  -115,509
  -126,333
  -137,619
  -149,371
  -161,598
  -174,310
  -187,521
  -201,250
  -215,517
  -230,344
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
 
  -2,373
  -3,393
  -4,714
  -6,388
  -8,461
  -10,974
  -13,963
  -17,454
  -21,470
  -26,024
  -31,122
  -36,765
  -42,949
  -49,666
  -56,906
  -64,657
  -72,906
  -81,643
  -90,857
  -100,540
  -110,687
  -121,295
  -132,364
  -143,897
  -155,901
  -168,386
  -181,364
  -194,851
  -208,867
  -223,433
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
 
  -2,081
  -2,579
  -3,065
  -3,503
  -3,856
  -4,093
  -4,190
  -4,142
  -3,953
  -3,646
  -3,249
  -2,797
  -2,327
  -1,869
  -1,450
  -1,085
  -783
  -545
  -365
  -235
  -146
  -87
  -49
  -27
  -14
  -7
  -3
  -2
  -1
  0
Current shareholders' claim on cash, %
  100
  23.9
  5.8
  1.5
  0.4
  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

EP Energy Corporation, an independent exploration and production company, acquires and develops unconventional onshore oil and natural gas properties in the United States. The company has interests in various properties covering an area of approximately 487,000 net acres located in the areas of Eagle Ford Shale, South Texas; the Wolfcamp Shale, the Permian Basin, West Texas; the Altamont Field, the Uinta Basin, Northeastern Utah; and the Haynesville Shale, North Louisiana. It primarily sells its oil and natural gas production to third parties. As of December 31, 2015, the company had proved reserves of 546.0 million barrels of oil equivalent. EP Energy Corporation is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  EP Energy Cl A (EPE)

Valuation Ratios
P/E Ratio -32.7
Price to Sales 1.2
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 1.1
Price to Free Cash Flow 3.5
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 46% 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 10 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 -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 - $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 245.833 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 $0.9 billion.

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COMPANY NEWS

▶ 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]
Stock chart of EPE Financial statements of EPE Annual reports 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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