Intrinsic value of Diamondback Energy - FANG

Previous Close

$87.08

  Intrinsic Value

$10.33

stock screener

  Rating & Target

str. sell

-88%

  Value-price divergence*

-42%

Previous close

$87.08

 
Intrinsic value

$10.33

 
Up/down potential

-88%

 
Rating

str. sell

 
Value-price divergence*

-42%

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

We calculate the intrinsic value of FANG 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 7.8

 

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, %
  17.90
  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
  527
  843
  1,303
  1,948
  2,827
  3,988
  5,483
  7,360
  9,664
  12,435
  15,706
  19,504
  23,845
  28,741
  34,196
  40,209
  46,772
  53,878
  61,514
  69,668
  78,327
  87,481
  97,120
  107,236
  117,825
  128,885
  140,419
  152,429
  164,926
  177,919
  191,424
Variable operating expenses, $m
 
  2,239
  3,459
  5,173
  7,505
  10,589
  14,557
  19,540
  25,657
  33,014
  41,700
  51,782
  63,308
  76,308
  90,791
  106,754
  124,181
  143,046
  163,319
  184,967
  207,958
  232,262
  257,852
  284,711
  312,825
  342,190
  372,811
  404,700
  437,878
  472,376
  508,232
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
  629
  2,239
  3,459
  5,173
  7,505
  10,589
  14,557
  19,540
  25,657
  33,014
  41,700
  51,782
  63,308
  76,308
  90,791
  106,754
  124,181
  143,046
  163,319
  184,967
  207,958
  232,262
  257,852
  284,711
  312,825
  342,190
  372,811
  404,700
  437,878
  472,376
  508,232
Operating income, $m
  -102
  -1,395
  -2,156
  -3,224
  -4,678
  -6,601
  -9,074
  -12,180
  -15,993
  -20,580
  -25,994
  -32,278
  -39,463
  -47,567
  -56,595
  -66,546
  -77,408
  -89,168
  -101,805
  -115,300
  -129,631
  -144,781
  -160,733
  -177,475
  -195,000
  -213,305
  -232,393
  -252,271
  -272,952
  -294,457
  -316,808
EBITDA, $m
  76
  -1,110
  -1,716
  -2,566
  -3,722
  -5,252
  -7,220
  -9,692
  -12,726
  -16,375
  -20,683
  -25,683
  -31,400
  -37,848
  -45,031
  -52,949
  -61,592
  -70,949
  -81,004
  -91,741
  -103,145
  -115,199
  -127,891
  -141,213
  -155,157
  -169,722
  -184,909
  -200,726
  -217,182
  -234,292
  -252,076
Interest expense (income), $m
  38
  53
  101
  170
  267
  400
  575
  800
  1,083
  1,430
  1,848
  2,341
  2,913
  3,567
  4,305
  5,128
  6,034
  7,023
  8,094
  9,245
  10,474
  11,779
  13,158
  14,611
  16,136
  17,732
  19,398
  21,137
  22,947
  24,830
  26,789
Earnings before tax, $m
  -165
  -1,449
  -2,257
  -3,394
  -4,946
  -7,000
  -9,649
  -12,980
  -17,076
  -22,010
  -27,842
  -34,619
  -42,377
  -51,134
  -60,900
  -71,673
  -83,442
  -96,191
  -109,899
  -124,545
  -140,105
  -156,560
  -173,891
  -192,086
  -211,136
  -231,037
  -251,791
  -273,407
  -295,899
  -319,287
  -343,596
Tax expense, $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
  0
Net income, $m
  -165
  -1,449
  -2,257
  -3,394
  -4,946
  -7,000
  -9,649
  -12,980
  -17,076
  -22,010
  -27,842
  -34,619
  -42,377
  -51,134
  -60,900
  -71,673
  -83,442
  -96,191
  -109,899
  -124,545
  -140,105
  -156,560
  -173,891
  -192,086
  -211,136
  -231,037
  -251,791
  -273,407
  -295,899
  -319,287
  -343,596

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,667
  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
  5,350
  5,897
  9,110
  13,624
  19,768
  27,890
  38,342
  51,466
  67,578
  86,957
  109,834
  136,388
  166,748
  200,987
  239,135
  281,180
  327,080
  376,769
  430,166
  487,186
  547,741
  611,754
  679,158
  749,900
  823,950
  901,296
  981,948
  1,065,939
  1,153,328
  1,244,192
  1,338,633
Adjusted assets (=assets-cash), $m
  3,683
  5,897
  9,110
  13,624
  19,768
  27,890
  38,342
  51,466
  67,578
  86,957
  109,834
  136,388
  166,748
  200,987
  239,135
  281,180
  327,080
  376,769
  430,166
  487,186
  547,741
  611,754
  679,158
  749,900
  823,950
  901,296
  981,948
  1,065,939
  1,153,328
  1,244,192
  1,338,633
Revenue / Adjusted assets
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
  0.143
Average production assets, $m
  2,994
  4,790
  7,401
  11,068
  16,059
  22,657
  31,148
  41,810
  54,899
  70,642
  89,227
  110,800
  135,463
  163,279
  194,269
  228,426
  265,714
  306,081
  349,460
  395,781
  444,976
  496,979
  551,736
  609,206
  669,363
  732,197
  797,718
  865,951
  936,944
  1,010,760
  1,087,483
Working capital, $m
  1,583
  -84
  -130
  -195
  -283
  -399
  -548
  -736
  -966
  -1,243
  -1,571
  -1,950
  -2,384
  -2,874
  -3,420
  -4,021
  -4,677
  -5,388
  -6,151
  -6,967
  -7,833
  -8,748
  -9,712
  -10,724
  -11,782
  -12,889
  -14,042
  -15,243
  -16,493
  -17,792
  -19,142
Total debt, $m
  1,106
  2,101
  3,543
  5,570
  8,329
  11,975
  16,669
  22,561
  29,796
  38,497
  48,768
  60,691
  74,323
  89,696
  106,825
  125,703
  146,312
  168,622
  192,598
  218,199
  245,389
  274,131
  304,395
  336,158
  369,407
  404,135
  440,347
  478,060
  517,297
  558,095
  600,499
Total liabilities, $m
  1,652
  2,648
  4,090
  6,117
  8,876
  12,522
  17,216
  23,108
  30,343
  39,044
  49,315
  61,238
  74,870
  90,243
  107,372
  126,250
  146,859
  169,169
  193,145
  218,746
  245,936
  274,678
  304,942
  336,705
  369,954
  404,682
  440,894
  478,607
  517,844
  558,642
  601,046
Total equity, $m
  3,697
  3,249
  5,020
  7,507
  10,892
  15,367
  21,126
  28,358
  37,236
  47,913
  60,518
  75,150
  91,878
  110,744
  131,763
  154,930
  180,221
  207,600
  237,022
  268,439
  301,806
  337,077
  374,216
  413,195
  453,997
  496,614
  541,053
  587,333
  635,484
  685,550
  737,587
Total liabilities and equity, $m
  5,349
  5,897
  9,110
  13,624
  19,768
  27,889
  38,342
  51,466
  67,579
  86,957
  109,833
  136,388
  166,748
  200,987
  239,135
  281,180
  327,080
  376,769
  430,167
  487,185
  547,742
  611,755
  679,158
  749,900
  823,951
  901,296
  981,947
  1,065,940
  1,153,328
  1,244,192
  1,338,633
Debt-to-equity ratio
  0.299
  0.650
  0.710
  0.740
  0.760
  0.780
  0.790
  0.800
  0.800
  0.800
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
Adjusted equity ratio
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -165
  -1,449
  -2,257
  -3,394
  -4,946
  -7,000
  -9,649
  -12,980
  -17,076
  -22,010
  -27,842
  -34,619
  -42,377
  -51,134
  -60,900
  -71,673
  -83,442
  -96,191
  -109,899
  -124,545
  -140,105
  -156,560
  -173,891
  -192,086
  -211,136
  -231,037
  -251,791
  -273,407
  -295,899
  -319,287
  -343,596
Depreciation, amort., depletion, $m
  178
  285
  441
  659
  956
  1,349
  1,854
  2,489
  3,268
  4,205
  5,311
  6,595
  8,063
  9,719
  11,564
  13,597
  15,816
  18,219
  20,801
  23,558
  26,487
  29,582
  32,841
  36,262
  39,843
  43,583
  47,483
  51,545
  55,770
  60,164
  64,731
Funds from operations, $m
  316
  -1,163
  -1,816
  -2,736
  -3,990
  -5,652
  -7,795
  -10,492
  -13,809
  -17,805
  -22,530
  -28,024
  -34,313
  -41,415
  -49,337
  -58,076
  -67,626
  -77,972
  -89,098
  -100,986
  -113,618
  -126,977
  -141,050
  -155,824
  -171,293
  -187,454
  -204,308
  -221,863
  -240,129
  -259,123
  -278,865
Change in working capital, $m
  -16
  -32
  -46
  -65
  -88
  -116
  -149
  -188
  -230
  -277
  -327
  -380
  -434
  -490
  -546
  -601
  -656
  -711
  -764
  -815
  -866
  -915
  -964
  -1,012
  -1,059
  -1,106
  -1,153
  -1,201
  -1,250
  -1,299
  -1,351
Cash from operations, $m
  332
  -1,132
  -1,770
  -2,671
  -3,902
  -5,536
  -7,645
  -10,304
  -13,578
  -17,528
  -22,203
  -27,644
  -33,879
  -40,926
  -48,791
  -57,475
  -66,969
  -77,261
  -88,334
  -100,171
  -112,752
  -126,062
  -140,086
  -154,812
  -170,234
  -186,347
  -203,155
  -220,661
  -238,879
  -257,823
  -277,514
Maintenance CAPEX, $m
  0
  -178
  -285
  -441
  -659
  -956
  -1,349
  -1,854
  -2,489
  -3,268
  -4,205
  -5,311
  -6,595
  -8,063
  -9,719
  -11,564
  -13,597
  -15,816
  -18,219
  -20,801
  -23,558
  -26,487
  -29,582
  -32,841
  -36,262
  -39,843
  -43,583
  -47,483
  -51,545
  -55,770
  -60,164
New CAPEX, $m
  -374
  -1,796
  -2,611
  -3,667
  -4,991
  -6,598
  -8,491
  -10,662
  -13,089
  -15,743
  -18,585
  -21,573
  -24,664
  -27,815
  -30,991
  -34,157
  -37,288
  -40,366
  -43,379
  -46,322
  -49,194
  -52,003
  -54,757
  -57,470
  -60,157
  -62,834
  -65,520
  -68,234
  -70,993
  -73,816
  -76,722
Cash from investing activities, $m
  -1,310
  -1,974
  -2,896
  -4,108
  -5,650
  -7,554
  -9,840
  -12,516
  -15,578
  -19,011
  -22,790
  -26,884
  -31,259
  -35,878
  -40,710
  -45,721
  -50,885
  -56,182
  -61,598
  -67,123
  -72,752
  -78,490
  -84,339
  -90,311
  -96,419
  -102,677
  -109,103
  -115,717
  -122,538
  -129,586
  -136,886
Free cash flow, $m
  -978
  -3,106
  -4,666
  -6,779
  -9,552
  -13,089
  -17,485
  -22,820
  -29,156
  -36,538
  -44,993
  -54,528
  -65,138
  -76,804
  -89,501
  -103,196
  -117,855
  -133,444
  -149,933
  -167,294
  -185,505
  -204,552
  -224,425
  -245,124
  -266,653
  -289,025
  -312,258
  -336,378
  -361,416
  -387,410
  -414,401
Issuance/(repayment) of debt, $m
  625
  995
  1,443
  2,027
  2,759
  3,647
  4,693
  5,893
  7,234
  8,701
  10,272
  11,923
  13,631
  15,373
  17,128
  18,878
  20,609
  22,310
  23,975
  25,602
  27,189
  28,742
  30,264
  31,763
  33,248
  34,728
  36,213
  37,712
  39,237
  40,798
  42,404
Issuance/(repurchase) of shares, $m
  2,052
  2,668
  4,028
  5,882
  8,331
  11,475
  15,408
  20,212
  25,954
  32,687
  40,447
  49,251
  59,105
  70,000
  81,920
  94,840
  108,733
  123,569
  139,321
  155,962
  173,471
  191,831
  211,030
  231,065
  251,937
  273,654
  296,230
  319,687
  344,050
  369,353
  395,633
Cash from financing (excl. dividends), $m  
  2,625
  3,663
  5,471
  7,909
  11,090
  15,122
  20,101
  26,105
  33,188
  41,388
  50,719
  61,174
  72,736
  85,373
  99,048
  113,718
  129,342
  145,879
  163,296
  181,564
  200,660
  220,573
  241,294
  262,828
  285,185
  308,382
  332,443
  357,399
  383,287
  410,151
  438,037
Total cash flow (excl. dividends), $m
  1,646
  556
  804
  1,130
  1,538
  2,033
  2,616
  3,285
  4,032
  4,850
  5,725
  6,646
  7,598
  8,569
  9,547
  10,523
  11,488
  12,436
  13,364
  14,270
  15,155
  16,021
  16,869
  17,705
  18,533
  19,357
  20,185
  21,021
  21,871
  22,741
  23,636
Retained Cash Flow (-), $m
  -1,821
  -2,668
  -4,028
  -5,882
  -8,331
  -11,475
  -15,408
  -20,212
  -25,954
  -32,687
  -40,447
  -49,251
  -59,105
  -70,000
  -81,920
  -94,840
  -108,733
  -123,569
  -139,321
  -155,962
  -173,471
  -191,831
  -211,030
  -231,065
  -251,937
  -273,654
  -296,230
  -319,687
  -344,050
  -369,353
  -395,633
Prev. year cash balance distribution, $m
 
  1,667
  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
 
  -445
  -3,223
  -4,752
  -6,793
  -9,443
  -12,792
  -16,927
  -21,922
  -27,837
  -34,721
  -42,605
  -51,506
  -61,431
  -72,372
  -84,317
  -97,246
  -111,134
  -125,957
  -141,692
  -158,316
  -175,810
  -194,161
  -213,360
  -233,405
  -254,297
  -276,045
  -298,666
  -322,179
  -346,612
  -371,997
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
 
  -426
  -2,951
  -4,135
  -5,594
  -7,319
  -9,284
  -11,436
  -13,702
  -15,991
  -18,203
  -20,232
  -21,980
  -23,357
  -24,297
  -24,754
  -24,712
  -24,181
  -23,196
  -21,817
  -20,117
  -18,185
  -16,110
  -13,984
  -11,888
  -9,892
  -8,054
  -6,410
  -4,985
  -3,784
  -2,801
Current shareholders' claim on cash, %
  100
  61.6
  38.8
  24.9
  16.3
  10.9
  7.4
  5.1
  3.5
  2.5
  1.8
  1.3
  0.9
  0.7
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Diamondback Energy, Inc., an independent oil and natural gas company, focuses on the acquisition, development, exploration, and exploitation of onshore oil and natural gas reserves in the Permian Basin in West Texas. Its activities are primarily focused on the Clearfork, Spraberry, Wolfcamp, Cline, Strawn, and Atoka formations. As of December 31, 2016, the company’s net acreage position is approximately 105,894 acres in the Permian Basin; and estimated proved oil and natural gas reserves were 205,457 thousand barrels of crude oil equivalent. It holds working interests in 998 gross producing wells. The company also owns mineral interests underlying approximately 107,568 gross acres in the Permian Basin. Diamondback Energy, Inc. was founded in 2007 and is headquartered in Midland, Texas.

FINANCIAL RATIOS  of  Diamondback Energy (FANG)

Valuation Ratios
P/E Ratio -47.6
Price to Sales 14.9
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 23.6
Price to Free Cash Flow -186.9
Growth Rates
Sales Growth Rate 17.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.2%
Cap. Spend. - 3 Yr. Gr. Rate 4.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 29.9%
Total Debt to Equity 29.9%
Interest Coverage -3
Management Effectiveness
Return On Assets -3.1%
Ret/ On Assets - 3 Yr. Avg. -3.9%
Return On Total Capital -4.6%
Ret/ On T. Cap. - 3 Yr. Avg. -5.7%
Return On Equity -5.9%
Return On Equity - 3 Yr. Avg. -7.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 75.7%
Gross Margin - 3 Yr. Avg. 76.6%
EBITDA Margin 9.7%
EBITDA Margin - 3 Yr. Avg. 0.6%
Operating Margin -19.4%
Oper. Margin - 3 Yr. Avg. -47.3%
Pre-Tax Margin -31.3%
Pre-Tax Margin - 3 Yr. Avg. -45.8%
Net Profit Margin -31.3%
Net Profit Margin - 3 Yr. Avg. -38.5%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 20.9%
Payout Ratio 0%

FANG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FANG stock intrinsic value calculation we used $527 million for the last fiscal year's total revenue generated by Diamondback Energy. The default revenue input number comes from 2016 income statement of Diamondback 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 FANG 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 FANG is calculated based on our internal credit rating of Diamondback 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 Diamondback 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 FANG stock the variable cost ratio is equal to 265.5%.

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 FANG 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 4.8% for Diamondback Energy.

Corporate tax rate of 27% is the nominal tax rate for Diamondback 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 FANG 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 FANG are equal to 568.1%.

Life of production assets of 16.8 years is the average useful life of capital assets used in Diamondback 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 FANG 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 - $3697 million for Diamondback 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 89.49 million for Diamondback 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 Diamondback Energy at the current share price and the inputted number of shares is $7.8 billion.

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Stock chart of FANG Financial statements of FANG
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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