Intrinsic value of Energy Transfer Equity - ETE

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$15.23

  Intrinsic Value

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  Value-price divergence*

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$15.23

 
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*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 15.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -10.97
  13.30
  12.47
  11.72
  11.05
  10.45
  9.90
  9.41
  8.97
  8.57
  8.22
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
Revenue, $m
  37,504
  42,492
  47,791
  53,393
  59,294
  65,487
  71,971
  78,744
  85,808
  93,164
  100,818
  108,776
  117,048
  125,645
  134,578
  143,862
  153,513
  163,550
  173,991
  184,859
  196,174
  207,962
  220,249
  233,062
  246,429
  260,382
  274,953
  290,175
  306,084
  322,718
  340,116
Variable operating expenses, $m
 
  35,306
  39,625
  44,191
  49,000
  54,048
  59,333
  64,853
  70,610
  76,605
  82,844
  88,656
  95,398
  102,405
  109,685
  117,252
  125,119
  133,299
  141,809
  150,666
  159,889
  169,496
  179,511
  189,953
  200,848
  212,220
  224,096
  236,503
  249,469
  263,026
  277,206
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
  40,241
  44,684
  49,376
  54,315
  59,496
  64,917
  70,577
  76,477
  82,618
  89,008
  94,974
  101,874
  109,043
  116,488
  124,226
  132,267
  140,626
  149,319
  158,364
  167,779
  177,583
  187,800
  198,450
  209,557
  221,147
  233,246
  245,882
  259,082
  272,879
  287,306
Operating income, $m
  1,582
  2,250
  3,107
  4,017
  4,979
  5,991
  7,055
  8,168
  9,331
  10,545
  11,810
  13,802
  15,174
  16,602
  18,089
  19,636
  21,247
  22,925
  24,673
  26,495
  28,396
  30,379
  32,449
  34,612
  36,872
  39,235
  41,707
  44,294
  47,002
  49,838
  52,810
EBITDA, $m
  3,941
  5,304
  6,457
  7,681
  8,973
  10,332
  11,759
  13,251
  14,810
  16,436
  18,130
  19,894
  21,729
  23,639
  25,625
  27,692
  29,844
  32,083
  34,416
  36,847
  39,381
  42,025
  44,783
  47,663
  50,672
  53,817
  57,104
  60,544
  64,143
  67,911
  71,857
Interest expense (income), $m
  1,922
  2,048
  2,038
  2,506
  3,002
  3,524
  4,073
  4,646
  5,246
  5,871
  6,522
  7,199
  7,903
  8,635
  9,396
  10,187
  11,008
  11,862
  12,750
  13,674
  14,636
  15,637
  16,681
  17,768
  18,902
  20,085
  21,320
  22,609
  23,956
  25,364
  26,836
Earnings before tax, $m
  -176
  203
  1,070
  1,510
  1,976
  2,467
  2,982
  3,521
  4,085
  4,674
  5,289
  6,603
  7,271
  7,967
  8,693
  9,449
  10,239
  11,062
  11,922
  12,821
  13,759
  14,741
  15,769
  16,844
  17,970
  19,150
  20,388
  21,685
  23,046
  24,475
  25,974
Tax expense, $m
  -217
  55
  289
  408
  534
  666
  805
  951
  1,103
  1,262
  1,428
  1,783
  1,963
  2,151
  2,347
  2,551
  2,764
  2,987
  3,219
  3,462
  3,715
  3,980
  4,258
  4,548
  4,852
  5,171
  5,505
  5,855
  6,222
  6,608
  7,013
Net income, $m
  995
  148
  781
  1,103
  1,443
  1,801
  2,177
  2,571
  2,982
  3,412
  3,861
  4,820
  5,308
  5,816
  6,346
  6,898
  7,474
  8,076
  8,703
  9,359
  10,044
  10,761
  11,511
  12,296
  13,118
  13,980
  14,883
  15,830
  16,824
  17,866
  18,961

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
  88,895
  99,981
  111,701
  124,045
  137,003
  150,567
  164,737
  179,514
  194,903
  210,916
  227,566
  244,871
  262,855
  281,543
  300,966
  321,158
  342,155
  363,999
  386,733
  410,406
  435,068
  460,772
  487,577
  515,543
  544,733
  575,216
  607,061
  640,344
  675,143
  711,539
Adjusted assets (=assets-cash), $m
  78,528
  88,895
  99,981
  111,701
  124,045
  137,003
  150,567
  164,737
  179,514
  194,903
  210,916
  227,566
  244,871
  262,855
  281,543
  300,966
  321,158
  342,155
  363,999
  386,733
  410,406
  435,068
  460,772
  487,577
  515,543
  544,733
  575,216
  607,061
  640,344
  675,143
  711,539
Revenue / Adjusted assets
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
  0.478
Average production assets, $m
  57,772
  65,438
  73,598
  82,226
  91,312
  100,850
  110,836
  121,266
  132,144
  143,472
  155,259
  167,516
  180,254
  193,493
  207,249
  221,547
  236,411
  251,867
  267,947
  284,682
  302,108
  320,262
  339,184
  358,915
  379,501
  400,989
  423,428
  446,870
  471,370
  496,986
  523,778
Working capital, $m
  -292
  467
  526
  587
  652
  720
  792
  866
  944
  1,025
  1,109
  1,197
  1,288
  1,382
  1,480
  1,582
  1,689
  1,799
  1,914
  2,033
  2,158
  2,288
  2,423
  2,564
  2,711
  2,864
  3,024
  3,192
  3,367
  3,550
  3,741
Total debt, $m
  44,052
  43,353
  53,330
  63,878
  74,988
  86,649
  98,858
  111,610
  124,909
  138,760
  153,171
  168,156
  183,731
  199,916
  216,736
  234,216
  252,389
  271,286
  290,946
  311,407
  332,713
  354,908
  378,042
  402,166
  427,335
  453,607
  481,041
  509,702
  539,657
  570,975
  603,732
Total liabilities, $m
  80,705
  80,006
  89,983
  100,531
  111,641
  123,302
  135,511
  148,263
  161,562
  175,413
  189,824
  204,809
  220,384
  236,569
  253,389
  270,869
  289,042
  307,939
  327,599
  348,060
  369,366
  391,561
  414,695
  438,819
  463,988
  490,260
  517,694
  546,355
  576,310
  607,628
  640,385
Total equity, $m
  -1,694
  8,890
  9,998
  11,170
  12,405
  13,700
  15,057
  16,474
  17,951
  19,490
  21,092
  22,757
  24,487
  26,285
  28,154
  30,097
  32,116
  34,215
  36,400
  38,673
  41,041
  43,507
  46,077
  48,758
  51,554
  54,473
  57,522
  60,706
  64,034
  67,514
  71,154
Total liabilities and equity, $m
  79,011
  88,896
  99,981
  111,701
  124,046
  137,002
  150,568
  164,737
  179,513
  194,903
  210,916
  227,566
  244,871
  262,854
  281,543
  300,966
  321,158
  342,154
  363,999
  386,733
  410,407
  435,068
  460,772
  487,577
  515,542
  544,733
  575,216
  607,061
  640,344
  675,142
  711,539
Debt-to-equity ratio
  -26.005
  4.880
  5.330
  5.720
  6.050
  6.320
  6.570
  6.780
  6.960
  7.120
  7.260
  7.390
  7.500
  7.610
  7.700
  7.780
  7.860
  7.930
  7.990
  8.050
  8.110
  8.160
  8.200
  8.250
  8.290
  8.330
  8.360
  8.400
  8.430
  8.460
  8.480
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
  148
  781
  1,103
  1,443
  1,801
  2,177
  2,571
  2,982
  3,412
  3,861
  4,820
  5,308
  5,816
  6,346
  6,898
  7,474
  8,076
  8,703
  9,359
  10,044
  10,761
  11,511
  12,296
  13,118
  13,980
  14,883
  15,830
  16,824
  17,866
  18,961
Depreciation, amort., depletion, $m
  2,359
  3,053
  3,350
  3,664
  3,994
  4,341
  4,704
  5,083
  5,479
  5,891
  6,320
  6,091
  6,555
  7,036
  7,536
  8,056
  8,597
  9,159
  9,744
  10,352
  10,986
  11,646
  12,334
  13,051
  13,800
  14,581
  15,397
  16,250
  17,141
  18,072
  19,046
Funds from operations, $m
  3,356
  3,201
  4,131
  4,766
  5,437
  6,142
  6,881
  7,654
  8,461
  9,303
  10,180
  10,912
  11,863
  12,852
  13,882
  14,954
  16,071
  17,234
  18,447
  19,711
  21,030
  22,407
  23,845
  25,348
  26,918
  28,561
  30,280
  32,080
  33,964
  35,939
  38,008
Change in working capital, $m
  -61
  55
  58
  62
  65
  68
  71
  75
  78
  81
  84
  88
  91
  95
  98
  102
  106
  110
  115
  120
  124
  130
  135
  141
  147
  153
  160
  167
  175
  183
  191
Cash from operations, $m
  3,417
  6,804
  4,073
  4,705
  5,372
  6,074
  6,810
  7,580
  8,384
  9,222
  10,096
  10,824
  11,772
  12,758
  13,784
  14,852
  15,965
  17,124
  18,332
  19,592
  20,906
  22,277
  23,710
  25,207
  26,771
  28,408
  30,120
  31,912
  33,789
  35,756
  37,816
Maintenance CAPEX, $m
  0
  -2,101
  -2,380
  -2,676
  -2,990
  -3,320
  -3,667
  -4,030
  -4,410
  -4,805
  -5,217
  -5,646
  -6,091
  -6,555
  -7,036
  -7,536
  -8,056
  -8,597
  -9,159
  -9,744
  -10,352
  -10,986
  -11,646
  -12,334
  -13,051
  -13,800
  -14,581
  -15,397
  -16,250
  -17,141
  -18,072
New CAPEX, $m
  -8,092
  -7,666
  -8,160
  -8,628
  -9,087
  -9,538
  -9,985
  -10,431
  -10,877
  -11,329
  -11,787
  -12,256
  -12,739
  -13,238
  -13,757
  -14,298
  -14,863
  -15,457
  -16,080
  -16,735
  -17,426
  -18,154
  -18,922
  -19,732
  -20,586
  -21,488
  -22,439
  -23,442
  -24,500
  -25,616
  -26,792
Cash from investing activities, $m
  -9,467
  -9,767
  -10,540
  -11,304
  -12,077
  -12,858
  -13,652
  -14,461
  -15,287
  -16,134
  -17,004
  -17,902
  -18,830
  -19,793
  -20,793
  -21,834
  -22,919
  -24,054
  -25,239
  -26,479
  -27,778
  -29,140
  -30,568
  -32,066
  -33,637
  -35,288
  -37,020
  -38,839
  -40,750
  -42,757
  -44,864
Free cash flow, $m
  -6,050
  -2,962
  -6,467
  -6,599
  -6,704
  -6,785
  -6,843
  -6,881
  -6,903
  -6,911
  -6,908
  -7,078
  -7,059
  -7,035
  -7,009
  -6,982
  -6,955
  -6,929
  -6,907
  -6,887
  -6,872
  -6,862
  -6,858
  -6,859
  -6,866
  -6,880
  -6,900
  -6,927
  -6,961
  -7,001
  -7,048
Issuance/(repayment) of debt, $m
  1,658
  -216
  9,977
  10,549
  11,109
  11,662
  12,208
  12,753
  13,299
  13,851
  14,411
  14,985
  15,575
  16,185
  16,819
  17,481
  18,172
  18,898
  19,659
  20,461
  21,305
  22,195
  23,134
  24,124
  25,169
  26,271
  27,434
  28,661
  29,955
  31,319
  32,757
Issuance/(repurchase) of shares, $m
  2,559
  13,762
  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 from financing (excl. dividends), $m  
  9,715
  13,546
  9,977
  10,549
  11,109
  11,662
  12,208
  12,753
  13,299
  13,851
  14,411
  14,985
  15,575
  16,185
  16,819
  17,481
  18,172
  18,898
  19,659
  20,461
  21,305
  22,195
  23,134
  24,124
  25,169
  26,271
  27,434
  28,661
  29,955
  31,319
  32,757
Total cash flow (excl. dividends), $m
  3,665
  -3,178
  3,510
  3,949
  4,405
  4,877
  5,365
  5,871
  6,396
  6,939
  7,503
  7,907
  8,516
  9,150
  9,810
  10,499
  11,218
  11,968
  12,753
  13,574
  14,433
  15,333
  16,276
  17,265
  18,303
  19,391
  20,534
  21,734
  22,994
  24,318
  25,709
Retained Cash Flow (-), $m
  762
  -10,584
  -1,109
  -1,172
  -1,234
  -1,296
  -1,356
  -1,417
  -1,478
  -1,539
  -1,601
  -1,665
  -1,731
  -1,798
  -1,869
  -1,942
  -2,019
  -2,100
  -2,184
  -2,273
  -2,367
  -2,466
  -2,570
  -2,680
  -2,797
  -2,919
  -3,048
  -3,185
  -3,328
  -3,480
  -3,640
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
 
  0
  2,401
  2,777
  3,171
  3,581
  4,009
  4,454
  4,918
  5,400
  5,902
  6,242
  6,786
  7,352
  7,942
  8,557
  9,198
  9,868
  10,569
  11,300
  12,066
  12,867
  13,706
  14,585
  15,506
  16,472
  17,486
  18,549
  19,666
  20,838
  22,069
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
 
  0
  1,795
  1,760
  1,678
  1,558
  1,411
  1,246
  1,073
  901
  738
  572
  445
  337
  248
  177
  123
  82
  53
  33
  20
  12
  7
  4
  2
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

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 16
Price to Sales 0.4
Price to Book -9.4
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow -3.4
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 13.3% 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 $15.8 billion.


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COMPANY NEWS

▶ Buy Energy Transfer Partners LPs (ETP) Latest Transition   [Jun-20-17 12:16PM  InvestorPlace]
▶ Energy Transfer Partners Has Fallen 20% in 2017   [Jun-19-17 03:05PM  Market Realist]
▶ Energy Transfer Equitys Price Forecast amid High Volatility   [Jun-13-17 06:05PM  Market Realist]
▶ The Top MLPs Short Interests Rose Recently   [Jun-12-17 06:05PM  Market Realist]
▶ MLPs with Top Upside Potential after May 2017   [Jun-08-17 07:36AM  Market Realist]
▶ Hearings scheduled on potential Dakota Access pipeline fines   [Jun-07-17 01:09PM  Associated Press]
▶ A Look at the Top-Performing MLPs in May 2017   [09:07AM  Market Realist]
▶ How Top MLPs Fared Last Week: EPD, ETP, PAA, and WPZ   [Jun-05-17 04:29PM  Market Realist]
▶ U.S. Pipeline Cos. Ready to Blow Past Regulatory Roadblock   [Jun-02-17 11:19AM  TheStreet.com]
▶ [$$] Dakota Access Pipeline Starts Shipping Oil   [01:35PM  The Wall Street Journal]
▶ Dakota Access pipeline expected to begin shipping Thursday   [May-31-17 06:30PM  Associated Press]
▶ Dakota Access pipeline, law officers had close relationship   [May-30-17 06:31PM  Associated Press]
▶ Short Interest in Energy Transfer Equity Is Rising   [May-25-17 10:35AM  Market Realist]
▶ 2 Leakages Found in ETP Pipeline   [May-23-17 05:12PM  Zacks]
▶ Why Energy Transfer Equity Underperformed AMLP Last Week   [May-22-17 05:29PM  Market Realist]
▶ Energy Transfer Partners Commodity Price Exposure   [May-19-17 01:35PM  Market Realist]
▶ Analyzing Energy Transfer Partners Cash Flow   [10:30AM  Market Realist]
▶ Post-Merger, Energy Transfer Partners' Star Is Rising   [May-16-17 02:20PM  Barrons.com]
Stock chart of ETE Financial statements of ETE Annual reports 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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