Intrinsic value of Energy Transfer Equity - ETE

Previous Close

$16.75

  Intrinsic Value

$48.95

stock screener

  Rating & Target

str. buy

+192%

  Value-price divergence*

-28%

Previous close

$16.75

 
Intrinsic value

$48.95

 
Up/down potential

+192%

 
Rating

str. buy

 
Value-price divergence*

-28%

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

We calculate the intrinsic value of ETE 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 17.4

 

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, %
  -10.97
  46.40
  42.26
  38.53
  35.18
  32.16
  29.45
  27.00
  24.80
  22.82
  21.04
  19.44
  17.99
  16.69
  15.52
  14.47
  13.52
  12.67
  11.90
  11.21
  10.59
  10.03
  9.53
  9.08
  8.67
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
Revenue, $m
  37,504
  54,906
  78,109
  108,208
  146,276
  193,322
  250,248
  317,819
  396,643
  487,162
  589,657
  704,258
  830,967
  969,676
  1,120,202
  1,282,307
  1,455,725
  1,640,187
  1,835,441
  2,041,265
  2,257,487
  2,483,987
  2,720,709
  2,967,667
  3,224,941
  3,492,687
  3,771,127
  4,060,557
  4,361,339
  4,673,901
  4,998,737
Variable operating expenses, $m
 
  45,424
  64,335
  88,867
  119,893
  158,238
  204,634
  259,707
  323,951
  397,727
  481,264
  573,994
  677,266
  790,319
  913,003
  1,045,124
  1,186,465
  1,336,808
  1,495,946
  1,663,700
  1,839,928
  2,024,533
  2,217,470
  2,418,749
  2,628,437
  2,846,658
  3,073,597
  3,309,492
  3,554,639
  3,809,388
  4,074,140
Fixed operating expenses, $m
 
  4,935
  5,059
  5,185
  5,315
  5,448
  5,584
  5,724
  5,867
  6,013
  6,164
  6,318
  6,476
  6,638
  6,803
  6,974
  7,148
  7,327
  7,510
  7,698
  7,890
  8,087
  8,289
  8,497
  8,709
  8,927
  9,150
  9,379
  9,613
  9,853
  10,100
Total operating expenses, $m
  35,922
  50,359
  69,394
  94,052
  125,208
  163,686
  210,218
  265,431
  329,818
  403,740
  487,428
  580,312
  683,742
  796,957
  919,806
  1,052,098
  1,193,613
  1,344,135
  1,503,456
  1,671,398
  1,847,818
  2,032,620
  2,225,759
  2,427,246
  2,637,146
  2,855,585
  3,082,747
  3,318,871
  3,564,252
  3,819,241
  4,084,240
Operating income, $m
  1,582
  4,547
  8,715
  14,156
  21,067
  29,636
  40,030
  52,388
  66,825
  83,421
  102,229
  123,946
  147,225
  172,720
  200,396
  230,210
  262,112
  296,052
  331,984
  369,867
  409,669
  451,366
  494,950
  540,421
  587,796
  637,102
  688,381
  741,687
  797,087
  854,660
  914,497
EBITDA, $m
  3,941
  8,295
  13,763
  20,889
  29,933
  41,136
  54,717
  70,860
  89,711
  111,376
  135,924
  163,385
  193,759
  227,022
  263,127
  302,019
  343,632
  387,903
  434,769
  484,178
  536,088
  590,469
  647,309
  706,610
  768,392
  832,692
  899,564
  969,078
  1,041,322
  1,116,398
  1,194,426
Interest expense (income), $m
  1,922
  2,070
  3,167
  5,233
  7,913
  11,304
  15,493
  20,563
  26,580
  33,599
  41,660
  50,788
  60,993
  72,277
  84,630
  98,034
  112,470
  127,913
  144,340
  161,728
  180,057
  199,312
  219,483
  240,564
  262,556
  285,467
  309,310
  334,106
  359,881
  386,666
  414,500
Earnings before tax, $m
  -176
  2,476
  5,548
  8,923
  13,154
  18,333
  24,537
  31,826
  40,245
  49,822
  60,569
  73,158
  86,232
  100,443
  115,766
  132,175
  149,642
  168,139
  187,644
  208,139
  229,611
  252,054
  275,467
  299,857
  325,240
  351,635
  379,070
  407,581
  437,206
  467,994
  499,996
Tax expense, $m
  -217
  669
  1,498
  2,409
  3,552
  4,950
  6,625
  8,593
  10,866
  13,452
  16,354
  19,753
  23,283
  27,120
  31,257
  35,687
  40,403
  45,398
  50,664
  56,198
  61,995
  68,054
  74,376
  80,962
  87,815
  94,941
  102,349
  110,047
  118,046
  126,358
  134,999
Net income, $m
  995
  1,808
  4,050
  6,513
  9,602
  13,383
  17,912
  23,233
  29,379
  36,370
  44,215
  53,406
  62,949
  73,323
  84,510
  96,488
  109,238
  122,741
  136,980
  151,942
  167,616
  183,999
  201,091
  218,896
  237,425
  256,694
  276,721
  297,534
  319,160
  341,635
  364,997

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  483
  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
  79,011
  115,591
  164,440
  227,806
  307,949
  406,993
  526,837
  669,092
  835,037
  1,025,604
  1,241,383
  1,482,649
  1,749,403
  2,041,424
  2,358,321
  2,699,593
  3,064,684
  3,453,025
  3,864,085
  4,297,401
  4,752,604
  5,229,446
  5,727,809
  6,247,720
  6,789,350
  7,353,025
  7,939,215
  8,548,541
  9,181,766
  9,839,791
  10,523,656
Adjusted assets (=assets-cash), $m
  78,528
  115,591
  164,440
  227,806
  307,949
  406,993
  526,837
  669,092
  835,037
  1,025,604
  1,241,383
  1,482,649
  1,749,403
  2,041,424
  2,358,321
  2,699,593
  3,064,684
  3,453,025
  3,864,085
  4,297,401
  4,752,604
  5,229,446
  5,727,809
  6,247,720
  6,789,350
  7,353,025
  7,939,215
  8,548,541
  9,181,766
  9,839,791
  10,523,656
Revenue / Adjusted assets
  0.478
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
  0.475
Average production assets, $m
  57,772
  84,555
  120,288
  166,640
  225,265
  297,715
  385,382
  489,441
  610,830
  750,229
  908,071
  1,084,558
  1,279,689
  1,493,302
  1,725,112
  1,974,753
  2,241,816
  2,525,888
  2,826,578
  3,143,549
  3,476,530
  3,825,340
  4,189,892
  4,570,207
  4,966,410
  5,378,738
  5,807,536
  6,253,258
  6,716,461
  7,197,807
  7,698,054
Working capital, $m
  -292
  604
  859
  1,190
  1,609
  2,127
  2,753
  3,496
  4,363
  5,359
  6,486
  7,747
  9,141
  10,666
  12,322
  14,105
  16,013
  18,042
  20,190
  22,454
  24,832
  27,324
  29,928
  32,644
  35,474
  38,420
  41,482
  44,666
  47,975
  51,413
  54,986
Total debt, $m
  44,052
  67,379
  111,343
  168,372
  240,501
  329,641
  437,501
  565,530
  714,880
  886,390
  1,080,591
  1,297,731
  1,537,810
  1,800,629
  2,085,836
  2,392,981
  2,721,562
  3,071,070
  3,441,024
  3,831,008
  4,240,691
  4,669,848
  5,118,375
  5,586,295
  6,073,762
  6,581,069
  7,108,641
  7,657,034
  8,226,936
  8,819,159
  9,434,638
Total liabilities, $m
  80,705
  104,032
  147,996
  205,025
  277,154
  366,294
  474,154
  602,183
  751,533
  923,043
  1,117,244
  1,334,384
  1,574,463
  1,837,282
  2,122,489
  2,429,634
  2,758,215
  3,107,723
  3,477,677
  3,867,661
  4,277,344
  4,706,501
  5,155,028
  5,622,948
  6,110,415
  6,617,722
  7,145,294
  7,693,687
  8,263,589
  8,855,812
  9,471,291
Total equity, $m
  -1,694
  11,559
  16,444
  22,781
  30,795
  40,699
  52,684
  66,909
  83,504
  102,560
  124,138
  148,265
  174,940
  204,142
  235,832
  269,959
  306,468
  345,303
  386,409
  429,740
  475,260
  522,945
  572,781
  624,772
  678,935
  735,302
  793,922
  854,854
  918,177
  983,979
  1,052,366
Total liabilities and equity, $m
  79,011
  115,591
  164,440
  227,806
  307,949
  406,993
  526,838
  669,092
  835,037
  1,025,603
  1,241,382
  1,482,649
  1,749,403
  2,041,424
  2,358,321
  2,699,593
  3,064,683
  3,453,026
  3,864,086
  4,297,401
  4,752,604
  5,229,446
  5,727,809
  6,247,720
  6,789,350
  7,353,024
  7,939,216
  8,548,541
  9,181,766
  9,839,791
  10,523,657
Debt-to-equity ratio
  -26.005
  5.830
  6.770
  7.390
  7.810
  8.100
  8.300
  8.450
  8.560
  8.640
  8.700
  8.750
  8.790
  8.820
  8.840
  8.860
  8.880
  8.890
  8.910
  8.910
  8.920
  8.930
  8.940
  8.940
  8.950
  8.950
  8.950
  8.960
  8.960
  8.960
  8.970
Adjusted equity ratio
  -0.028
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  995
  1,808
  4,050
  6,513
  9,602
  13,383
  17,912
  23,233
  29,379
  36,370
  44,215
  53,406
  62,949
  73,323
  84,510
  96,488
  109,238
  122,741
  136,980
  151,942
  167,616
  183,999
  201,091
  218,896
  237,425
  256,694
  276,721
  297,534
  319,160
  341,635
  364,997
Depreciation, amort., depletion, $m
  2,359
  3,749
  5,048
  6,733
  8,865
  11,500
  14,688
  18,472
  22,886
  27,955
  33,695
  39,438
  46,534
  54,302
  62,731
  71,809
  81,521
  91,850
  102,785
  114,311
  126,419
  139,103
  152,360
  166,189
  180,597
  195,590
  211,183
  227,391
  244,235
  261,738
  279,929
Funds from operations, $m
  3,356
  5,556
  9,098
  13,247
  18,468
  24,883
  32,599
  41,705
  52,265
  64,325
  77,910
  92,844
  109,483
  127,625
  147,241
  168,297
  190,759
  214,592
  239,765
  266,253
  294,035
  323,102
  353,450
  385,085
  418,022
  452,284
  487,905
  524,925
  563,395
  603,374
  644,927
Change in working capital, $m
  -61
  191
  255
  331
  419
  518
  626
  743
  867
  996
  1,127
  1,261
  1,394
  1,526
  1,656
  1,783
  1,908
  2,029
  2,148
  2,264
  2,378
  2,491
  2,604
  2,717
  2,830
  2,945
  3,063
  3,184
  3,309
  3,438
  3,573
Cash from operations, $m
  3,417
  5,365
  8,843
  12,916
  18,049
  24,365
  31,973
  40,961
  51,398
  63,329
  76,782
  91,583
  108,089
  126,099
  145,585
  166,514
  188,851
  212,563
  237,617
  263,988
  291,657
  320,611
  350,846
  382,369
  415,192
  449,339
  484,842
  521,741
  560,087
  599,936
  641,353
Maintenance CAPEX, $m
  0
  -2,101
  -3,075
  -4,374
  -6,060
  -8,191
  -10,826
  -14,014
  -17,798
  -22,212
  -27,281
  -33,021
  -39,438
  -46,534
  -54,302
  -62,731
  -71,809
  -81,521
  -91,850
  -102,785
  -114,311
  -126,419
  -139,103
  -152,360
  -166,189
  -180,597
  -195,590
  -211,183
  -227,391
  -244,235
  -261,738
New CAPEX, $m
  -8,092
  -26,783
  -35,733
  -46,352
  -58,625
  -72,451
  -87,666
  -104,059
  -121,389
  -139,400
  -157,842
  -176,486
  -195,131
  -213,613
  -231,810
  -249,641
  -267,063
  -284,072
  -300,691
  -316,970
  -332,981
  -348,810
  -364,553
  -380,315
  -396,203
  -412,328
  -428,798
  -445,722
  -463,204
  -481,346
  -500,247
Cash from investing activities, $m
  -9,467
  -28,884
  -38,808
  -50,726
  -64,685
  -80,642
  -98,492
  -118,073
  -139,187
  -161,612
  -185,123
  -209,507
  -234,569
  -260,147
  -286,112
  -312,372
  -338,872
  -365,593
  -392,541
  -419,755
  -447,292
  -475,229
  -503,656
  -532,675
  -562,392
  -592,925
  -624,388
  -656,905
  -690,595
  -725,581
  -761,985
Free cash flow, $m
  -6,050
  -23,519
  -29,965
  -37,810
  -46,636
  -56,277
  -66,519
  -77,112
  -87,789
  -98,282
  -108,341
  -117,924
  -126,480
  -134,048
  -140,527
  -145,858
  -150,021
  -153,030
  -154,924
  -155,766
  -155,635
  -154,618
  -152,810
  -150,305
  -147,200
  -143,586
  -139,547
  -135,164
  -130,508
  -125,645
  -120,632
Issuance/(repayment) of debt, $m
  1,658
  23,327
  43,964
  57,029
  72,129
  89,140
  107,860
  128,029
  149,350
  171,510
  194,201
  217,140
  240,079
  262,819
  285,207
  307,145
  328,581
  349,507
  369,954
  389,984
  409,683
  429,158
  448,527
  467,919
  487,468
  507,307
  527,571
  548,393
  569,902
  592,223
  615,478
Issuance/(repurchase) of shares, $m
  2,559
  11,446
  835
  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 from financing (excl. dividends), $m  
  9,715
  34,773
  44,799
  57,029
  72,129
  89,140
  107,860
  128,029
  149,350
  171,510
  194,201
  217,140
  240,079
  262,819
  285,207
  307,145
  328,581
  349,507
  369,954
  389,984
  409,683
  429,158
  448,527
  467,919
  487,468
  507,307
  527,571
  548,393
  569,902
  592,223
  615,478
Total cash flow (excl. dividends), $m
  3,665
  11,254
  14,834
  19,219
  25,493
  32,863
  41,341
  50,917
  61,562
  73,228
  85,860
  99,216
  113,599
  128,771
  144,680
  161,287
  178,560
  196,478
  215,030
  234,217
  254,048
  274,539
  295,717
  317,614
  340,267
  363,721
  388,024
  413,230
  439,394
  466,578
  494,846
Retained Cash Flow (-), $m
  762
  -13,253
  -4,885
  -6,337
  -8,014
  -9,904
  -11,984
  -14,225
  -16,594
  -19,057
  -21,578
  -24,127
  -26,675
  -29,202
  -31,690
  -34,127
  -36,509
  -38,834
  -41,106
  -43,332
  -45,520
  -47,684
  -49,836
  -51,991
  -54,163
  -56,367
  -58,619
  -60,933
  -63,322
  -65,803
  -68,386
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
 
  -2,000
  9,949
  12,882
  17,479
  22,958
  29,356
  36,692
  44,967
  54,171
  64,282
  75,089
  86,924
  99,568
  112,991
  127,160
  142,051
  157,644
  173,924
  190,886
  208,528
  226,855
  245,881
  265,623
  286,104
  307,354
  329,405
  352,297
  376,071
  400,775
  426,460
Discount rate, %
 
  14.90
  15.65
  16.43
  17.25
  18.11
  19.02
  19.97
  20.97
  22.01
  23.11
  24.27
  25.48
  26.76
  28.10
  29.50
  30.98
  32.52
  34.15
  35.86
  37.65
  39.53
  41.51
  43.59
  45.77
  48.05
  50.46
  52.98
  55.63
  58.41
  61.33
PV of cash for distribution, $m
 
  -1,740
  7,439
  8,163
  9,249
  9,988
  10,329
  10,259
  9,808
  9,038
  8,035
  6,879
  5,703
  4,565
  3,528
  2,632
  1,894
  1,314
  878
  565
  350
  208
  118
  65
  34
  17
  8
  4
  2
  1
  0
Current shareholders' claim on cash, %
  100
  50.0
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6
  46.6

Energy Transfer Equity, L.P. provides diversified energy-related services in the Unites States. It owns and operates approximately 7,500 miles of natural gas transportation pipelines and three natural gas storage facilities in Texas; and approximately 12,300 miles of interstate natural gas pipelines. The company sells natural gas to electric utilities, independent power plants, local distribution companies, industrial end-users, and other marketing companies. Its midstream operations include ownership and operation of approximately 35,000 miles of in service natural gas pipelines, 31 natural gas processing plants, 21 natural gas treating facilities, and 4 natural gas conditioning facilities in Texas, New Mexico, West Virginia, Pennsylvania, and Louisiana; operation of natural gas gathering, oil pipeline, and oil stabilization facilities in South Texas, as well as a natural gas gathering system in Ohio; and transportation and supply of water to natural gas producers in Pennsylvania. The company’s natural gas liquid (NGL) transportation and services operations include ownership of approximately 2,000 miles of NGL pipelines, three NGL processing plants, four NGL and propane fractionation facilities, and NGL storage facilities. It also sells gasoline and middle distillates at retail; operates convenience stores primarily on the east coast and in the Midwest region of the United States; and gathers, purchases, stores, transports, markets, and sells crude oil, NGLs, and refined products. In addition, it provides natural gas compression services; treating services, such as carbon dioxide and hydrogen sulfide removal, natural gas cooling, dehydration, and British thermal unit management services; and manages coal and natural resources properties, as well as sells standing timber, leases coal-related infrastructure facilities, collects oil and gas royalties, and generates a total of 75 megawatts electrical power. The company was founded in 2002 and is based in Dallas, Texas.

FINANCIAL RATIOS  of  Energy Transfer Equity (ETE)

Valuation Ratios
P/E Ratio 17.6
Price to Sales 0.5
Price to Book -10.4
Price to Tangible Book
Price to Cash Flow 5.1
Price to Free Cash Flow -3.8
Growth Rates
Sales Growth Rate -11%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.8%
Cap. Spend. - 3 Yr. Gr. Rate 18.2%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity -2530%
Total Debt to Equity -2600.5%
Interest Coverage 1
Management Effectiveness
Return On Assets 0.7%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital 2.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2.8%
Return On Equity -75.8%
Return On Equity - 3 Yr. Avg. -296.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 24.2%
Gross Margin - 3 Yr. Avg. 18.7%
EBITDA Margin 10.9%
EBITDA Margin - 3 Yr. Avg. 10.2%
Operating Margin 4.2%
Oper. Margin - 3 Yr. Avg. 4.7%
Pre-Tax Margin -0.5%
Pre-Tax Margin - 3 Yr. Avg. 1.5%
Net Profit Margin 2.7%
Net Profit Margin - 3 Yr. Avg. 2.2%
Effective Tax Rate 123.3%
Eff/ Tax Rate - 3 Yr. Avg. 46.1%
Payout Ratio 380.7%

ETE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ETE stock intrinsic value calculation we used $37504 million for the last fiscal year's total revenue generated by Energy Transfer Equity. The default revenue input number comes from 2016 income statement of Energy Transfer Equity. 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 ETE stock valuation model: a) initial revenue growth rate of 46.4% 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 14.9%, whose default value for ETE is calculated based on our internal credit rating of Energy Transfer Equity, 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 Energy Transfer Equity.
    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 ETE stock the variable cost ratio is equal to 83.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4815 million in the base year in the intrinsic value calculation for ETE stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.7% for Energy Transfer Equity.

Corporate tax rate of 27% is the nominal tax rate for Energy Transfer Equity. 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 ETE 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 ETE are equal to 154%.

Life of production assets of 27.5 years is the average useful life of capital assets used in Energy Transfer Equity 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 ETE is equal to 1.1%. 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 - $-1694 million for Energy Transfer Equity - 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 1040.42 million for Energy Transfer Equity 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 Energy Transfer Equity at the current share price and the inputted number of shares is $17.4 billion.

RELATED COMPANIES Price Int.Val. Rating
ETP Energy Transfe 18.50 6.77  str.sell
KMI Kinder Morgan 18.40 5.79  str.sell
SEP Spectra Energy 43.52 6.97  str.sell
TEP Tallgrass Ener 45.75 15.83  str.sell
ENB Enbridge 39.13 237.94  str.buy
TRP TransCanada 49.00 2.22  str.sell
PAA Plains All Ame 19.14 9.98  str.sell
EPD Enterprise Pro 24.98 1.91  str.sell
TRGP Targa Resource 42.62 6.67  str.sell

COMPANY NEWS

▶ Behind the Opposition to ETPs Dakota Access Pipeline   [Aug-18-17 05:05PM  Market Realist]
▶ What Analysts Recommend for ETE   [Aug-17-17 10:37AM  Market Realist]
▶ MLP Earnings Wrap-Up for the Week Ended August 11   [Aug-15-17 05:35PM  Market Realist]
▶ ONEOK Is Down 10% Year-to-DateWhats Ahead?   [03:09PM  Market Realist]
▶ ETE and ETP: Wall Streets Latest Recommendations   [Aug-11-17 09:08AM  Market Realist]
▶ ETEs and ETPs Price Forecasts after 2Q17 Earnings   [Aug-10-17 06:06PM  Market Realist]
▶ Energy Transfer Partners LP Finally Turns the Corner   [Aug-09-17 12:15PM  Motley Fool]
▶ Energy Transfer Equity misses 2Q profit forecasts   [Aug-08-17 10:49PM  Associated Press]
▶ 3 Oil & Gas Stocks for Ambitious Investors   [Aug-06-17 07:05AM  Motley Fool]
▶ ONEOK: What Are Analysts Recommendations?   [Aug-03-17 07:38AM  Market Realist]
▶ ETP and ETE Rose after the Rover Stake Sale Announcement   [Aug-02-17 02:35PM  Market Realist]
▶ What Drove ETPs and ETEs Stock Performance in 2Q17   [Aug-01-17 10:38AM  Market Realist]
▶ [$$] Blackstone Energy to Buy Stake in Troubled Rover Pipeline   [Jul-31-17 07:25PM  The Wall Street Journal]
▶ MLPs Fell Nearly 2% Last Week, Driven by Oil Prices   [Jul-24-17 05:45PM  Market Realist]
▶ Dakota Access developer gets OK to replace trees   [Jul-21-17 02:24PM  Associated Press]
▶ Dakota Access developer gets OK to replace trees   [02:24PM  Associated Press]
▶ [$$] Gas Everywhere but No Way to Ship It   [12:32AM  The Wall Street Journal]
▶ What Analysts Recommend for ETE   [10:37AM  Market Realist]
▶ Appeals court overturns $535M verdict against Enterprise Products Partners   [Jul-19-17 04:50PM  American City Business Journals]
▶ Whats Energy Transfer Equitys Price Forecast?   [04:35PM  Market Realist]
▶ Chenieres Key Role in the USs Becoming a Global LNG Leader   [Jul-18-17 07:43AM  Market Realist]
▶ ETE, WPZ, MPLX: Last Weeks Key MLP Rating Changes   [Jul-17-17 04:05PM  Market Realist]
▶ What Analysts Recommend for Energy Transfer Equity   [Jul-13-17 09:06AM  Market Realist]
▶ Where Is Energy Transfer Equity Stock Headed?   [11:05AM  Market Realist]
▶ EPD, ETP, PAA, WPZ: What Do Current Valuations Indicate?   [Jul-10-17 05:06PM  Market Realist]
▶ Enbridge Inc: the Bear Case from a Bull   [Jul-06-17 10:36AM  Motley Fool]
Stock chart of ETE Financial statements of ETE
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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