Intrinsic value of Earthstone Energy - ESTE

Previous Close

$10.10

  Intrinsic Value

$2.72

stock screener

  Rating & Target

str. sell

-73%

Previous close

$10.10

 
Intrinsic value

$2.72

 
Up/down potential

-73%

 
Rating

str. sell

We calculate the intrinsic value of ESTE 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  -10.64
  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
  42
  173
  267
  399
  579
  817
  1,124
  1,508
  1,980
  2,548
  3,219
  3,997
  4,887
  5,890
  7,008
  8,240
  9,585
  11,041
  12,606
  14,277
  16,052
  17,928
  19,903
  21,976
  24,146
  26,413
  28,776
  31,238
  33,799
  36,462
  39,229
Variable operating expenses, $m
 
  181
  279
  416
  603
  850
  1,169
  1,568
  2,058
  2,648
  3,344
  4,150
  5,074
  6,116
  7,277
  8,556
  9,953
  11,465
  13,089
  14,825
  16,667
  18,615
  20,666
  22,819
  25,072
  27,425
  29,880
  32,435
  35,094
  37,859
  40,733
Fixed operating expenses, $m
 
  45
  46
  47
  48
  49
  50
  51
  52
  54
  55
  56
  57
  58
  60
  61
  62
  64
  65
  67
  68
  69
  71
  73
  74
  76
  77
  79
  81
  83
  85
Total operating expenses, $m
  88
  226
  325
  463
  651
  899
  1,219
  1,619
  2,110
  2,702
  3,399
  4,206
  5,131
  6,174
  7,337
  8,617
  10,015
  11,529
  13,154
  14,892
  16,735
  18,684
  20,737
  22,892
  25,146
  27,501
  29,957
  32,514
  35,175
  37,942
  40,818
Operating income, $m
  -46
  -53
  -58
  -64
  -72
  -82
  -95
  -111
  -130
  -153
  -180
  -209
  -244
  -284
  -328
  -377
  -430
  -487
  -548
  -614
  -683
  -757
  -834
  -915
  -1,000
  -1,088
  -1,181
  -1,277
  -1,377
  -1,480
  -1,588
EBITDA, $m
  -20
  34
  77
  136
  218
  326
  465
  641
  856
  1,116
  1,422
  1,778
  2,185
  2,644
  3,156
  3,720
  4,336
  5,003
  5,719
  6,485
  7,298
  8,157
  9,062
  10,012
  11,006
  12,044
  13,127
  14,255
  15,428
  16,648
  17,916
Interest expense (income), $m
  1
  3
  48
  114
  207
  333
  500
  715
  984
  1,315
  1,713
  2,183
  2,728
  3,352
  4,055
  4,839
  5,702
  6,645
  7,665
  8,762
  9,933
  11,177
  12,491
  13,876
  15,328
  16,849
  18,438
  20,094
  21,819
  23,614
  25,480
Earnings before tax, $m
  -54
  -57
  -106
  -179
  -279
  -416
  -595
  -826
  -1,114
  -1,468
  -1,893
  -2,392
  -2,973
  -3,636
  -4,383
  -5,215
  -6,132
  -7,132
  -8,214
  -9,376
  -10,616
  -11,933
  -13,325
  -14,791
  -16,328
  -17,938
  -19,618
  -21,371
  -23,196
  -25,094
  -27,068
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
  -55
  -57
  -106
  -179
  -279
  -416
  -595
  -826
  -1,114
  -1,468
  -1,893
  -2,392
  -2,973
  -3,636
  -4,383
  -5,215
  -6,132
  -7,132
  -8,214
  -9,376
  -10,616
  -11,933
  -13,325
  -14,791
  -16,328
  -17,938
  -19,618
  -21,371
  -23,196
  -25,094
  -27,068

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  10
  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
  317
  1,329
  2,054
  3,071
  4,456
  6,287
  8,643
  11,602
  15,234
  19,602
  24,759
  30,746
  37,589
  45,308
  53,907
  63,386
  73,733
  84,934
  96,971
  109,825
  123,476
  137,906
  153,100
  169,048
  185,741
  203,176
  221,357
  240,291
  259,991
  280,474
  301,764
Adjusted assets (=assets-cash), $m
  307
  1,329
  2,054
  3,071
  4,456
  6,287
  8,643
  11,602
  15,234
  19,602
  24,759
  30,746
  37,589
  45,308
  53,907
  63,386
  73,733
  84,934
  96,971
  109,825
  123,476
  137,906
  153,100
  169,048
  185,741
  203,176
  221,357
  240,291
  259,991
  280,474
  301,764
Revenue / Adjusted assets
  0.137
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
Average production assets, $m
  236
  859
  1,327
  1,985
  2,880
  4,064
  5,587
  7,499
  9,847
  12,670
  16,004
  19,873
  24,296
  29,285
  34,844
  40,970
  47,658
  54,898
  62,678
  70,986
  79,810
  89,137
  98,958
  109,266
  120,055
  131,325
  143,077
  155,315
  168,048
  181,287
  195,048
Working capital, $m
  -12
  -70
  -108
  -162
  -235
  -331
  -455
  -611
  -802
  -1,032
  -1,304
  -1,619
  -1,979
  -2,385
  -2,838
  -3,337
  -3,882
  -4,472
  -5,106
  -5,782
  -6,501
  -7,261
  -8,061
  -8,900
  -9,779
  -10,697
  -11,654
  -12,651
  -13,689
  -14,767
  -15,888
Total debt, $m
  14
  354
  835
  1,512
  2,433
  3,651
  5,217
  7,185
  9,600
  12,505
  15,935
  19,915
  24,467
  29,599
  35,318
  41,621
  48,502
  55,951
  63,955
  72,503
  81,581
  91,177
  101,281
  111,886
  122,987
  134,582
  146,672
  159,263
  172,364
  185,985
  200,143
Total liabilities, $m
  75
  884
  1,366
  2,042
  2,963
  4,181
  5,748
  7,715
  10,131
  13,036
  16,465
  20,446
  24,997
  30,130
  35,848
  42,151
  49,032
  56,481
  64,486
  73,033
  82,111
  91,707
  101,812
  112,417
  123,517
  135,112
  147,203
  159,794
  172,894
  186,515
  200,673
Total equity, $m
  241
  445
  688
  1,029
  1,493
  2,106
  2,896
  3,887
  5,103
  6,567
  8,294
  10,300
  12,592
  15,178
  18,059
  21,234
  24,700
  28,453
  32,485
  36,791
  41,364
  46,198
  51,289
  56,631
  62,223
  68,064
  74,155
  80,498
  87,097
  93,959
  101,091
Total liabilities and equity, $m
  316
  1,329
  2,054
  3,071
  4,456
  6,287
  8,644
  11,602
  15,234
  19,603
  24,759
  30,746
  37,589
  45,308
  53,907
  63,385
  73,732
  84,934
  96,971
  109,824
  123,475
  137,905
  153,101
  169,048
  185,740
  203,176
  221,358
  240,292
  259,991
  280,474
  301,764
Debt-to-equity ratio
  0.058
  0.790
  1.210
  1.470
  1.630
  1.730
  1.800
  1.850
  1.880
  1.900
  1.920
  1.930
  1.940
  1.950
  1.960
  1.960
  1.960
  1.970
  1.970
  1.970
  1.970
  1.970
  1.970
  1.980
  1.980
  1.980
  1.980
  1.980
  1.980
  1.980
  1.980
Adjusted equity ratio
  0.752
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -55
  -57
  -106
  -179
  -279
  -416
  -595
  -826
  -1,114
  -1,468
  -1,893
  -2,392
  -2,973
  -3,636
  -4,383
  -5,215
  -6,132
  -7,132
  -8,214
  -9,376
  -10,616
  -11,933
  -13,325
  -14,791
  -16,328
  -17,938
  -19,618
  -21,371
  -23,196
  -25,094
  -27,068
Depreciation, amort., depletion, $m
  26
  88
  135
  200
  290
  408
  560
  752
  986
  1,269
  1,602
  1,987
  2,430
  2,929
  3,484
  4,097
  4,766
  5,490
  6,268
  7,099
  7,981
  8,914
  9,896
  10,927
  12,006
  13,133
  14,308
  15,531
  16,805
  18,129
  19,505
Funds from operations, $m
  -12
  31
  28
  22
  11
  -7
  -35
  -74
  -128
  -199
  -291
  -405
  -543
  -708
  -899
  -1,118
  -1,366
  -1,642
  -1,946
  -2,277
  -2,635
  -3,020
  -3,429
  -3,864
  -4,323
  -4,805
  -5,311
  -5,839
  -6,391
  -6,965
  -7,563
Change in working capital, $m
  -14
  -26
  -38
  -54
  -73
  -96
  -124
  -156
  -191
  -230
  -272
  -315
  -360
  -406
  -453
  -499
  -545
  -590
  -634
  -677
  -719
  -760
  -800
  -840
  -879
  -918
  -957
  -997
  -1,037
  -1,078
  -1,121
Cash from operations, $m
  2
  57
  66
  75
  84
  89
  89
  82
  63
  31
  -19
  -90
  -183
  -301
  -446
  -619
  -821
  -1,052
  -1,312
  -1,600
  -1,917
  -2,260
  -2,629
  -3,024
  -3,444
  -3,887
  -4,353
  -4,842
  -5,354
  -5,887
  -6,443
Maintenance CAPEX, $m
  0
  -54
  -86
  -133
  -199
  -288
  -406
  -559
  -750
  -985
  -1,267
  -1,600
  -1,987
  -2,430
  -2,929
  -3,484
  -4,097
  -4,766
  -5,490
  -6,268
  -7,099
  -7,981
  -8,914
  -9,896
  -10,927
  -12,006
  -13,133
  -14,308
  -15,531
  -16,805
  -18,129
New CAPEX, $m
  -29
  -322
  -468
  -658
  -895
  -1,183
  -1,523
  -1,912
  -2,348
  -2,824
  -3,333
  -3,869
  -4,424
  -4,989
  -5,558
  -6,126
  -6,688
  -7,240
  -7,780
  -8,308
  -8,823
  -9,327
  -9,821
  -10,308
  -10,790
  -11,270
  -11,752
  -12,238
  -12,733
  -13,240
  -13,761
Cash from investing activities, $m
  -60
  -376
  -554
  -791
  -1,094
  -1,471
  -1,929
  -2,471
  -3,098
  -3,809
  -4,600
  -5,469
  -6,411
  -7,419
  -8,487
  -9,610
  -10,785
  -12,006
  -13,270
  -14,576
  -15,922
  -17,308
  -18,735
  -20,204
  -21,717
  -23,276
  -24,885
  -26,546
  -28,264
  -30,045
  -31,890
Free cash flow, $m
  -58
  -318
  -488
  -715
  -1,010
  -1,382
  -1,840
  -2,389
  -3,034
  -3,778
  -4,620
  -5,559
  -6,594
  -7,720
  -8,933
  -10,230
  -11,606
  -13,058
  -14,582
  -16,176
  -17,839
  -19,568
  -21,364
  -23,228
  -25,160
  -27,162
  -29,237
  -31,388
  -33,618
  -35,931
  -38,332
Issuance/(repayment) of debt, $m
  -2
  329
  482
  677
  921
  1,218
  1,567
  1,967
  2,415
  2,905
  3,429
  3,981
  4,551
  5,133
  5,719
  6,303
  6,881
  7,449
  8,005
  8,548
  9,078
  9,596
  10,104
  10,605
  11,101
  11,595
  12,090
  12,591
  13,100
  13,621
  14,158
Issuance/(repurchase) of shares, $m
  47
  223
  349
  519
  743
  1,029
  1,384
  1,817
  2,331
  2,932
  3,621
  4,398
  5,266
  6,222
  7,264
  8,391
  9,598
  10,884
  12,246
  13,682
  15,189
  16,767
  18,415
  20,133
  21,920
  23,779
  25,709
  27,714
  29,795
  31,956
  34,200
Cash from financing (excl. dividends), $m  
  45
  552
  831
  1,196
  1,664
  2,247
  2,951
  3,784
  4,746
  5,837
  7,050
  8,379
  9,817
  11,355
  12,983
  14,694
  16,479
  18,333
  20,251
  22,230
  24,267
  26,363
  28,519
  30,738
  33,021
  35,374
  37,799
  40,305
  42,895
  45,577
  48,358
Total cash flow (excl. dividends), $m
  -13
  233
  343
  481
  654
  864
  1,111
  1,395
  1,712
  2,059
  2,430
  2,819
  3,223
  3,635
  4,050
  4,464
  4,873
  5,275
  5,669
  6,053
  6,429
  6,796
  7,156
  7,510
  7,861
  8,211
  8,562
  8,917
  9,277
  9,646
  10,026
Retained Cash Flow (-), $m
  -41
  -223
  -349
  -519
  -743
  -1,029
  -1,384
  -1,817
  -2,331
  -2,932
  -3,621
  -4,398
  -5,266
  -6,222
  -7,264
  -8,391
  -9,598
  -10,884
  -12,246
  -13,682
  -15,189
  -16,767
  -18,415
  -20,133
  -21,920
  -23,779
  -25,709
  -27,714
  -29,795
  -31,956
  -34,200
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
 
  7
  11
  16
  24
  35
  50
  69
  92
  121
  155
  196
  244
  298
  359
  427
  503
  585
  674
  769
  871
  979
  1,094
  1,214
  1,341
  1,473
  1,611
  1,755
  1,906
  2,062
  2,224
Cash available for distribution, $m
 
  10
  -6
  -38
  -89
  -165
  -273
  -422
  -619
  -873
  -1,190
  -1,578
  -2,043
  -2,587
  -3,215
  -3,927
  -4,725
  -5,609
  -6,577
  -7,629
  -8,761
  -9,972
  -11,260
  -12,623
  -14,059
  -15,568
  -17,147
  -18,797
  -20,518
  -22,310
  -24,174
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  10
  -6
  -33
  -73
  -128
  -198
  -285
  -387
  -501
  -624
  -750
  -872
  -984
  -1,079
  -1,153
  -1,201
  -1,220
  -1,211
  -1,175
  -1,113
  -1,031
  -934
  -827
  -716
  -606
  -500
  -403
  -317
  -244
  -182
Current shareholders' claim on cash, %
  100
  52.1
  27.4
  14.6
  8.0
  4.5
  2.5
  1.5
  0.9
  0.5
  0.3
  0.2
  0.1
  0.1
  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

Earthstone Energy, Inc. is an independent oil and natural gas development and production company. The Company is also engaged in corporate mergers and the acquisition of oil and natural gas properties that have production and future development opportunities. Its operations are all in the upstream segment of the oil and natural gas industry and all its properties are onshore in the United States. The Company's reserve portfolio primarily consists of assets in the Midland Basin of west Texas, the Eagle Ford trend of south Texas and in the Williston Basin of North Dakota. As of December 31, 2016, the Company held approximately 5,900 net leasehold acres in the Midland Basin, located in Howard, Glasscock, Martin and Midland Counties. As of December 31, 2016, it also has approximately 21,000 net leasehold acres in the Eagle Ford trend of south Texas. In the Williston Basin of North Dakota, it had approximately 5,900 net leasehold acres, as of December 31, 2016.

FINANCIAL RATIOS  of  Earthstone Energy (ESTE)

Valuation Ratios
P/E Ratio -4.1
Price to Sales 5.4
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 112.5
Price to Free Cash Flow -8.3
Growth Rates
Sales Growth Rate -10.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -52.5%
Cap. Spend. - 3 Yr. Gr. Rate 21.4%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 5%
Total Debt to Equity 5.8%
Interest Coverage -53
Management Effectiveness
Return On Assets -18.6%
Ret/ On Assets - 3 Yr. Avg. -21%
Return On Total Capital -23.6%
Ret/ On T. Cap. - 3 Yr. Avg. -27.7%
Return On Equity -24.9%
Return On Equity - 3 Yr. Avg. -29.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 52.4%
Gross Margin - 3 Yr. Avg. 63.7%
EBITDA Margin -64.3%
EBITDA Margin - 3 Yr. Avg. -93.2%
Operating Margin -109.5%
Oper. Margin - 3 Yr. Avg. -149.8%
Pre-Tax Margin -128.6%
Pre-Tax Margin - 3 Yr. Avg. -149.1%
Net Profit Margin -131%
Net Profit Margin - 3 Yr. Avg. -146.8%
Effective Tax Rate -1.9%
Eff/ Tax Rate - 3 Yr. Avg. -99.3%
Payout Ratio 0%

ESTE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ESTE stock intrinsic value calculation we used $108 million for the last fiscal year's total revenue generated by Earthstone Energy. The default revenue input number comes from 2016 income statement of Earthstone Energy. 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 ESTE 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 4.3%, whose default value for ESTE is calculated based on our internal credit rating of Earthstone Energy, 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 Earthstone Energy.
    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 ESTE stock the variable cost ratio is equal to 105.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $44 million in the base year in the intrinsic value calculation for ESTE 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 13.7% for Earthstone Energy.

Corporate tax rate of 27% is the nominal tax rate for Earthstone Energy. 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 ESTE stock is equal to 6.1%.

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 ESTE are equal to 497.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Earthstone Energy 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 ESTE is equal to -40.5%. 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 - $279 million for Earthstone Energy - 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 24 million for Earthstone Energy 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 Earthstone Energy at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Earthstone Energy, Inc. Reports First Quarter 2018 Results   [May-03-18 04:10PM  Business Wire]
▶ Earthstone Energy, Inc. Class A to Host Earnings Call   [Mar-15-18 08:30AM  ACCESSWIRE]
▶ EnerCom Dallas Announces 2018 Conference Presenters   [Jan-18-18 05:44PM  PR Newswire]
▶ Earthstone Energy, Inc. Completes Sale of Bakken Assets   [Dec-21-17 06:00AM  Business Wire]
▶ Earthstone Energy, Inc. Announces Sale of Bakken Assets   [Nov-20-17 06:00AM  Business Wire]
▶ Earthstone Energy Inc to Host Earnings Call   [Nov-06-17 06:45AM  ACCESSWIRE]
▶ Here's Why Earthstone Energy Inc Stock Is Slumping Today   [Oct-19-17 11:37AM  Motley Fool]
▶ Earthstone Energy, Inc. Announces Uplisting to NYSE   [May-09-17 04:30PM  Accesswire]
▶ Conference-OGIS New York for Earthstone Energy, Inc.   [Mar-08-17 05:56PM  at Company Spotlight]
Financial statements of ESTE
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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