Intrinsic value of Earthstone Energy - ESTE

Previous Close

$8.99

  Intrinsic Value

$2.53

stock screener

  Rating & Target

str. sell

-72%

  Value-price divergence*

-32%

Previous close

$8.99

 
Intrinsic value

$2.53

 
Up/down potential

-72%

 
Rating

str. sell

 
Value-price divergence*

-32%

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

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

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 0.2

 

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
  67
  104
  155
  225
  318
  437
  587
  770
  991
  1,252
  1,554
  1,900
  2,291
  2,725
  3,204
  3,728
  4,294
  4,902
  5,552
  6,242
  6,972
  7,740
  8,546
  9,390
  10,272
  11,191
  12,148
  13,144
  14,180
  15,256
Variable operating expenses, $m
 
  280
  432
  646
  936
  1,320
  1,814
  2,434
  3,196
  4,112
  5,193
  6,446
  7,881
  9,499
  11,302
  13,289
  15,459
  17,807
  20,331
  23,026
  25,888
  28,914
  32,099
  35,443
  38,943
  42,598
  46,410
  50,380
  54,510
  58,805
  63,268
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
  88
  280
  432
  646
  936
  1,320
  1,814
  2,434
  3,196
  4,112
  5,193
  6,446
  7,881
  9,499
  11,302
  13,289
  15,459
  17,807
  20,331
  23,026
  25,888
  28,914
  32,099
  35,443
  38,943
  42,598
  46,410
  50,380
  54,510
  58,805
  63,268
Operating income, $m
  -46
  -213
  -329
  -490
  -711
  -1,002
  -1,377
  -1,848
  -2,426
  -3,121
  -3,941
  -4,892
  -5,981
  -7,209
  -8,577
  -10,085
  -11,731
  -13,513
  -15,429
  -17,474
  -19,646
  -21,942
  -24,359
  -26,896
  -29,552
  -32,326
  -35,219
  -38,232
  -41,366
  -44,625
  -48,012
EBITDA, $m
  -20
  -174
  -269
  -402
  -583
  -822
  -1,130
  -1,517
  -1,992
  -2,563
  -3,238
  -4,020
  -4,915
  -5,924
  -7,049
  -8,288
  -9,641
  -11,106
  -12,680
  -14,361
  -16,146
  -18,032
  -20,019
  -22,105
  -24,287
  -26,567
  -28,944
  -31,420
  -33,996
  -36,675
  -39,458
Interest expense (income), $m
  1
  1
  4
  10
  17
  27
  40
  57
  78
  103
  135
  171
  214
  262
  317
  379
  446
  520
  599
  685
  776
  874
  976
  1,084
  1,198
  1,317
  1,441
  1,570
  1,705
  1,845
  1,991
Earnings before tax, $m
  -54
  -214
  -333
  -500
  -728
  -1,029
  -1,417
  -1,904
  -2,503
  -3,224
  -4,076
  -5,063
  -6,194
  -7,471
  -8,894
  -10,464
  -12,177
  -14,033
  -16,028
  -18,159
  -20,422
  -22,815
  -25,335
  -27,981
  -30,750
  -33,643
  -36,660
  -39,802
  -43,071
  -46,470
  -50,003
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
  -214
  -333
  -500
  -728
  -1,029
  -1,417
  -1,904
  -2,503
  -3,224
  -4,076
  -5,063
  -6,194
  -7,471
  -8,894
  -10,464
  -12,177
  -14,033
  -16,028
  -18,159
  -20,422
  -22,815
  -25,335
  -27,981
  -30,750
  -33,643
  -36,660
  -39,802
  -43,071
  -46,470
  -50,003

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
  491
  758
  1,133
  1,644
  2,320
  3,190
  4,281
  5,622
  7,234
  9,137
  11,346
  13,871
  16,719
  19,893
  23,390
  27,209
  31,342
  35,784
  40,527
  45,565
  50,890
  56,497
  62,382
  68,542
  74,976
  81,685
  88,672
  95,942
  103,500
  111,357
Adjusted assets (=assets-cash), $m
  307
  491
  758
  1,133
  1,644
  2,320
  3,190
  4,281
  5,622
  7,234
  9,137
  11,346
  13,871
  16,719
  19,893
  23,390
  27,209
  31,342
  35,784
  40,527
  45,565
  50,890
  56,497
  62,382
  68,542
  74,976
  81,685
  88,672
  95,942
  103,500
  111,357
Revenue / Adjusted assets
  0.137
  0.136
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
  0.137
Average production assets, $m
  236
  377
  582
  871
  1,263
  1,782
  2,450
  3,289
  4,318
  5,557
  7,018
  8,715
  10,655
  12,843
  15,281
  17,968
  20,901
  24,076
  27,488
  31,131
  35,001
  39,092
  43,399
  47,919
  52,651
  57,593
  62,747
  68,114
  73,698
  79,505
  85,540
Working capital, $m
  -12
  -7
  -10
  -16
  -23
  -32
  -44
  -59
  -77
  -99
  -125
  -155
  -190
  -229
  -273
  -320
  -373
  -429
  -490
  -555
  -624
  -697
  -774
  -855
  -939
  -1,027
  -1,119
  -1,215
  -1,314
  -1,418
  -1,526
Total debt, $m
  14
  56
  121
  211
  334
  497
  707
  970
  1,293
  1,681
  2,140
  2,672
  3,281
  3,967
  4,732
  5,575
  6,495
  7,491
  8,562
  9,705
  10,919
  12,202
  13,554
  14,972
  16,457
  18,007
  19,624
  21,308
  23,060
  24,882
  26,775
Total liabilities, $m
  75
  118
  183
  273
  396
  559
  769
  1,032
  1,355
  1,743
  2,202
  2,734
  3,343
  4,029
  4,794
  5,637
  6,557
  7,553
  8,624
  9,767
  10,981
  12,264
  13,616
  15,034
  16,519
  18,069
  19,686
  21,370
  23,122
  24,944
  26,837
Total equity, $m
  241
  372
  575
  860
  1,248
  1,761
  2,421
  3,250
  4,267
  5,490
  6,935
  8,611
  10,528
  12,690
  15,099
  17,753
  20,651
  23,789
  27,160
  30,760
  34,584
  38,625
  42,881
  47,348
  52,023
  56,907
  61,999
  67,302
  72,820
  78,557
  84,520
Total liabilities and equity, $m
  316
  490
  758
  1,133
  1,644
  2,320
  3,190
  4,282
  5,622
  7,233
  9,137
  11,345
  13,871
  16,719
  19,893
  23,390
  27,208
  31,342
  35,784
  40,527
  45,565
  50,889
  56,497
  62,382
  68,542
  74,976
  81,685
  88,672
  95,942
  103,501
  111,357
Debt-to-equity ratio
  0.058
  0.150
  0.210
  0.250
  0.270
  0.280
  0.290
  0.300
  0.300
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.310
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
Adjusted equity ratio
  0.752
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759
  0.759

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -55
  -214
  -333
  -500
  -728
  -1,029
  -1,417
  -1,904
  -2,503
  -3,224
  -4,076
  -5,063
  -6,194
  -7,471
  -8,894
  -10,464
  -12,177
  -14,033
  -16,028
  -18,159
  -20,422
  -22,815
  -25,335
  -27,981
  -30,750
  -33,643
  -36,660
  -39,802
  -43,071
  -46,470
  -50,003
Depreciation, amort., depletion, $m
  26
  39
  60
  89
  128
  180
  247
  331
  434
  557
  704
  872
  1,066
  1,284
  1,528
  1,797
  2,090
  2,408
  2,749
  3,113
  3,500
  3,909
  4,340
  4,792
  5,265
  5,759
  6,275
  6,811
  7,370
  7,950
  8,554
Funds from operations, $m
  -12
  -175
  -273
  -411
  -600
  -849
  -1,170
  -1,574
  -2,070
  -2,667
  -3,372
  -4,191
  -5,129
  -6,187
  -7,366
  -8,667
  -10,087
  -11,625
  -13,279
  -15,046
  -16,922
  -18,906
  -20,995
  -23,189
  -25,485
  -27,884
  -30,385
  -32,990
  -35,701
  -38,519
  -41,449
Change in working capital, $m
  -14
  -3
  -4
  -5
  -7
  -9
  -12
  -15
  -18
  -22
  -26
  -30
  -35
  -39
  -43
  -48
  -52
  -57
  -61
  -65
  -69
  -73
  -77
  -81
  -84
  -88
  -92
  -96
  -100
  -104
  -108
Cash from operations, $m
  2
  -172
  -269
  -406
  -593
  -840
  -1,158
  -1,559
  -2,051
  -2,645
  -3,346
  -4,161
  -5,094
  -6,148
  -7,323
  -8,619
  -10,035
  -11,569
  -13,218
  -14,981
  -16,853
  -18,833
  -20,919
  -23,108
  -25,401
  -27,796
  -30,293
  -32,894
  -35,601
  -38,416
  -41,341
Maintenance CAPEX, $m
  0
  -24
  -38
  -58
  -87
  -126
  -178
  -245
  -329
  -432
  -556
  -702
  -872
  -1,066
  -1,284
  -1,528
  -1,797
  -2,090
  -2,408
  -2,749
  -3,113
  -3,500
  -3,909
  -4,340
  -4,792
  -5,265
  -5,759
  -6,275
  -6,811
  -7,370
  -7,950
New CAPEX, $m
  -29
  -141
  -205
  -288
  -393
  -519
  -668
  -839
  -1,030
  -1,238
  -1,462
  -1,697
  -1,940
  -2,188
  -2,438
  -2,687
  -2,933
  -3,175
  -3,412
  -3,644
  -3,870
  -4,090
  -4,307
  -4,521
  -4,732
  -4,942
  -5,154
  -5,367
  -5,584
  -5,806
  -6,035
Cash from investing activities, $m
  -60
  -165
  -243
  -346
  -480
  -645
  -846
  -1,084
  -1,359
  -1,670
  -2,018
  -2,399
  -2,812
  -3,254
  -3,722
  -4,215
  -4,730
  -5,265
  -5,820
  -6,393
  -6,983
  -7,590
  -8,216
  -8,861
  -9,524
  -10,207
  -10,913
  -11,642
  -12,395
  -13,176
  -13,985
Free cash flow, $m
  -58
  -337
  -512
  -753
  -1,072
  -1,485
  -2,004
  -2,642
  -3,410
  -4,315
  -5,363
  -6,560
  -7,906
  -9,401
  -11,045
  -12,834
  -14,765
  -16,834
  -19,038
  -21,373
  -23,836
  -26,424
  -29,135
  -31,969
  -34,924
  -38,003
  -41,206
  -44,536
  -47,997
  -51,592
  -55,327
Issuance/(repayment) of debt, $m
  -2
  44
  64
  90
  123
  163
  210
  263
  323
  389
  459
  532
  609
  686
  765
  843
  920
  996
  1,071
  1,143
  1,214
  1,283
  1,351
  1,418
  1,485
  1,551
  1,617
  1,684
  1,752
  1,822
  1,893
Issuance/(repurchase) of shares, $m
  47
  354
  536
  785
  1,116
  1,542
  2,077
  2,733
  3,520
  4,448
  5,520
  6,740
  8,111
  9,633
  11,303
  13,118
  15,075
  17,170
  19,399
  21,759
  24,245
  26,857
  29,591
  32,447
  35,426
  38,527
  41,752
  45,105
  48,588
  52,207
  55,966
Cash from financing (excl. dividends), $m  
  45
  398
  600
  875
  1,239
  1,705
  2,287
  2,996
  3,843
  4,837
  5,979
  7,272
  8,720
  10,319
  12,068
  13,961
  15,995
  18,166
  20,470
  22,902
  25,459
  28,140
  30,942
  33,865
  36,911
  40,078
  43,369
  46,789
  50,340
  54,029
  57,859
Total cash flow (excl. dividends), $m
  -13
  61
  88
  123
  167
  220
  282
  354
  434
  521
  615
  712
  814
  918
  1,023
  1,127
  1,231
  1,332
  1,432
  1,529
  1,624
  1,717
  1,807
  1,897
  1,986
  2,074
  2,163
  2,252
  2,343
  2,437
  2,533
Retained Cash Flow (-), $m
  -41
  -354
  -536
  -785
  -1,116
  -1,542
  -2,077
  -2,733
  -3,520
  -4,448
  -5,520
  -6,740
  -8,111
  -9,633
  -11,303
  -13,118
  -15,075
  -17,170
  -19,399
  -21,759
  -24,245
  -26,857
  -29,591
  -32,447
  -35,426
  -38,527
  -41,752
  -45,105
  -48,588
  -52,207
  -55,966
Prev. year cash balance distribution, $m
 
  8
  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
 
  -285
  -448
  -662
  -949
  -1,322
  -1,795
  -2,379
  -3,087
  -3,926
  -4,905
  -6,028
  -7,297
  -8,715
  -10,280
  -11,991
  -13,845
  -15,838
  -17,968
  -20,230
  -22,622
  -25,140
  -27,784
  -30,550
  -33,440
  -36,452
  -39,589
  -42,852
  -46,245
  -49,770
  -53,433
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
 
  -273
  -410
  -576
  -781
  -1,025
  -1,302
  -1,607
  -1,929
  -2,255
  -2,571
  -2,862
  -3,114
  -3,314
  -3,451
  -3,520
  -3,518
  -3,446
  -3,309
  -3,115
  -2,875
  -2,600
  -2,305
  -2,002
  -1,703
  -1,418
  -1,155
  -920
  -715
  -543
  -402
Current shareholders' claim on cash, %
  100
  35.2
  12.8
  4.8
  1.9
  0.7
  0.3
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Earthstone Energy, Inc., an independent oil and natural gas exploration and production company, focuses on the acquisition, development, exploration, and production of onshore, crude oil, and natural gas reserves in the United States. Its asset portfolio includes the Eagle Ford trend of south Texas; and the Williston Basin of North Dakota and Montana, as well as other operated and non-operated properties in east and south Texas, and eastern Oklahoma. As of December 31, 2015, the company operated 62 gross Eagle Ford wells; and 8 gross Austin Chalk wells, as well as had 12,574 thousand barrels of oil equivalent (MBOE) of total proved reserves, 8,613 MBOE of proved developed reserves, and 3,961 MBOE of proved undeveloped reserves. Earthstone Energy, Inc. was founded in 1969 and is headquartered in The Woodlands, Texas.

FINANCIAL RATIOS  of  Earthstone Energy (ESTE)

Valuation Ratios
P/E Ratio -3.6
Price to Sales 4.8
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 100.1
Price to Free Cash Flow -7.4
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 $42 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 419%.

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 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 8% 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 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 ESTE are equal to 560.7%.

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 -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 - $241 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 22.05 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. 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]
▶ Earthstone Energy, Inc. Provides Operations Update   [Sep-15-16 04:00PM  Accesswire]
Stock chart of ESTE 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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