Intrinsic value of Legacy Reserves - LGCY

Previous Close

$1.55

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

Previous close

$1.55

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

We calculate the intrinsic value of LGCY 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 0.1

 

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, %
  -7.37
  27.40
  25.16
  23.14
  21.33
  19.70
  18.23
  16.90
  15.71
  14.64
  13.68
  12.81
  12.03
  11.33
  10.69
  10.12
  9.61
  9.15
  8.74
  8.36
  8.03
  7.72
  7.45
  7.21
  6.99
  6.79
  6.61
  6.45
  6.30
  6.17
  6.06
Revenue, $m
  314
  400
  501
  617
  748
  895
  1,059
  1,238
  1,432
  1,642
  1,866
  2,105
  2,359
  2,626
  2,907
  3,201
  3,509
  3,830
  4,164
  4,512
  4,874
  5,251
  5,642
  6,049
  6,471
  6,911
  7,367
  7,842
  8,336
  8,851
  9,387
Variable operating expenses, $m
 
  1,256
  1,572
  1,936
  2,349
  2,812
  3,324
  3,886
  4,497
  5,155
  5,860
  6,611
  7,406
  8,245
  9,127
  10,051
  11,017
  12,025
  13,075
  14,169
  15,306
  16,488
  17,717
  18,993
  20,320
  21,699
  23,133
  24,624
  26,176
  27,792
  29,475
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
  249
  1,256
  1,572
  1,936
  2,349
  2,812
  3,324
  3,886
  4,497
  5,155
  5,860
  6,611
  7,406
  8,245
  9,127
  10,051
  11,017
  12,025
  13,075
  14,169
  15,306
  16,488
  17,717
  18,993
  20,320
  21,699
  23,133
  24,624
  26,176
  27,792
  29,475
Operating income, $m
  66
  -856
  -1,071
  -1,319
  -1,601
  -1,916
  -2,265
  -2,648
  -3,065
  -3,513
  -3,994
  -4,506
  -5,048
  -5,619
  -6,220
  -6,850
  -7,508
  -8,195
  -8,911
  -9,656
  -10,431
  -11,237
  -12,074
  -12,944
  -13,849
  -14,788
  -15,766
  -16,782
  -17,840
  -18,941
  -20,088
EBITDA, $m
  216
  -665
  -833
  -1,026
  -1,244
  -1,490
  -1,761
  -2,059
  -2,382
  -2,731
  -3,105
  -3,502
  -3,924
  -4,368
  -4,835
  -5,325
  -5,837
  -6,371
  -6,927
  -7,507
  -8,109
  -8,735
  -9,386
  -10,063
  -10,765
  -11,496
  -12,256
  -13,046
  -13,868
  -14,724
  -15,616
Interest expense (income), $m
  0
  41
  39
  53
  68
  85
  104
  125
  148
  174
  201
  230
  261
  294
  329
  366
  404
  444
  486
  529
  575
  622
  671
  722
  775
  830
  887
  946
  1,008
  1,072
  1,139
Earnings before tax, $m
  -55
  -897
  -1,111
  -1,372
  -1,668
  -2,001
  -2,369
  -2,774
  -3,213
  -3,687
  -4,195
  -4,736
  -5,309
  -5,914
  -6,549
  -7,216
  -7,912
  -8,639
  -9,397
  -10,186
  -11,006
  -11,859
  -12,745
  -13,666
  -14,623
  -15,618
  -16,653
  -17,729
  -18,848
  -20,014
  -21,227
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
  -56
  -897
  -1,111
  -1,372
  -1,668
  -2,001
  -2,369
  -2,774
  -3,213
  -3,687
  -4,195
  -4,736
  -5,309
  -5,914
  -6,549
  -7,216
  -7,912
  -8,639
  -9,397
  -10,186
  -11,006
  -11,859
  -12,745
  -13,666
  -14,623
  -15,618
  -16,653
  -17,729
  -18,848
  -20,014
  -21,227

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3
  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
  1,300
  1,653
  2,069
  2,548
  3,091
  3,700
  4,374
  5,114
  5,918
  6,784
  7,712
  8,700
  9,746
  10,850
  12,011
  13,227
  14,498
  15,825
  17,207
  18,646
  20,143
  21,698
  23,315
  24,995
  26,741
  28,556
  30,443
  32,406
  34,448
  36,574
  38,789
Adjusted assets (=assets-cash), $m
  1,297
  1,653
  2,069
  2,548
  3,091
  3,700
  4,374
  5,114
  5,918
  6,784
  7,712
  8,700
  9,746
  10,850
  12,011
  13,227
  14,498
  15,825
  17,207
  18,646
  20,143
  21,698
  23,315
  24,995
  26,741
  28,556
  30,443
  32,406
  34,448
  36,574
  38,789
Revenue / Adjusted assets
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
Average production assets, $m
  1,302
  1,658
  2,075
  2,556
  3,101
  3,712
  4,388
  5,130
  5,936
  6,805
  7,736
  8,727
  9,777
  10,884
  12,048
  13,268
  14,543
  15,874
  17,260
  18,704
  20,205
  21,765
  23,387
  25,072
  26,824
  28,644
  30,537
  32,506
  34,554
  36,687
  38,909
Working capital, $m
  -4
  -9
  -11
  -14
  -16
  -20
  -23
  -27
  -32
  -36
  -41
  -46
  -52
  -58
  -64
  -70
  -77
  -84
  -92
  -99
  -107
  -116
  -124
  -133
  -142
  -152
  -162
  -173
  -183
  -195
  -207
Total debt, $m
  1,161
  1,127
  1,501
  1,932
  2,421
  2,969
  3,576
  4,242
  4,965
  5,745
  6,580
  7,469
  8,411
  9,404
  10,449
  11,543
  12,687
  13,881
  15,125
  16,420
  17,767
  19,167
  20,622
  22,135
  23,706
  25,339
  27,038
  28,804
  30,642
  32,556
  34,549
Total liabilities, $m
  1,522
  1,488
  1,862
  2,293
  2,782
  3,330
  3,937
  4,603
  5,326
  6,106
  6,941
  7,830
  8,772
  9,765
  10,810
  11,904
  13,048
  14,242
  15,486
  16,781
  18,128
  19,528
  20,983
  22,496
  24,067
  25,700
  27,399
  29,165
  31,003
  32,917
  34,910
Total equity, $m
  -222
  165
  207
  255
  309
  370
  437
  511
  592
  678
  771
  870
  975
  1,085
  1,201
  1,323
  1,450
  1,582
  1,721
  1,865
  2,014
  2,170
  2,331
  2,500
  2,674
  2,856
  3,044
  3,241
  3,445
  3,657
  3,879
Total liabilities and equity, $m
  1,300
  1,653
  2,069
  2,548
  3,091
  3,700
  4,374
  5,114
  5,918
  6,784
  7,712
  8,700
  9,747
  10,850
  12,011
  13,227
  14,498
  15,824
  17,207
  18,646
  20,142
  21,698
  23,314
  24,996
  26,741
  28,556
  30,443
  32,406
  34,448
  36,574
  38,789
Debt-to-equity ratio
  -5.230
  6.820
  7.260
  7.580
  7.830
  8.020
  8.170
  8.290
  8.390
  8.470
  8.530
  8.590
  8.630
  8.670
  8.700
  8.730
  8.750
  8.770
  8.790
  8.810
  8.820
  8.830
  8.850
  8.860
  8.870
  8.870
  8.880
  8.890
  8.900
  8.900
  8.910
Adjusted equity ratio
  -0.173
  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
  -56
  -897
  -1,111
  -1,372
  -1,668
  -2,001
  -2,369
  -2,774
  -3,213
  -3,687
  -4,195
  -4,736
  -5,309
  -5,914
  -6,549
  -7,216
  -7,912
  -8,639
  -9,397
  -10,186
  -11,006
  -11,859
  -12,745
  -13,666
  -14,623
  -15,618
  -16,653
  -17,729
  -18,848
  -20,014
  -21,227
Depreciation, amort., depletion, $m
  150
  191
  239
  294
  356
  427
  504
  590
  682
  782
  889
  1,003
  1,124
  1,251
  1,385
  1,525
  1,672
  1,825
  1,984
  2,150
  2,322
  2,502
  2,688
  2,882
  3,083
  3,292
  3,510
  3,736
  3,972
  4,217
  4,472
Funds from operations, $m
  -14
  -706
  -872
  -1,078
  -1,312
  -1,574
  -1,865
  -2,184
  -2,531
  -2,905
  -3,306
  -3,733
  -4,185
  -4,663
  -5,164
  -5,691
  -6,241
  -6,815
  -7,413
  -8,036
  -8,684
  -9,357
  -10,057
  -10,784
  -11,540
  -12,326
  -13,143
  -13,992
  -14,876
  -15,797
  -16,755
Change in working capital, $m
  -14
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
Cash from operations, $m
  0
  -704
  -870
  -1,076
  -1,309
  -1,571
  -1,861
  -2,180
  -2,526
  -2,900
  -3,301
  -3,727
  -4,180
  -4,657
  -5,158
  -5,684
  -6,234
  -6,808
  -7,406
  -8,028
  -8,676
  -9,349
  -10,048
  -10,775
  -11,531
  -12,316
  -13,133
  -13,982
  -14,865
  -15,785
  -16,743
Maintenance CAPEX, $m
  0
  -150
  -191
  -239
  -294
  -356
  -427
  -504
  -590
  -682
  -782
  -889
  -1,003
  -1,124
  -1,251
  -1,385
  -1,525
  -1,672
  -1,825
  -1,984
  -2,150
  -2,322
  -2,502
  -2,688
  -2,882
  -3,083
  -3,292
  -3,510
  -3,736
  -3,972
  -4,217
New CAPEX, $m
  0
  -357
  -417
  -480
  -545
  -611
  -676
  -742
  -806
  -869
  -931
  -991
  -1,050
  -1,107
  -1,164
  -1,220
  -1,275
  -1,331
  -1,387
  -1,443
  -1,501
  -1,560
  -1,622
  -1,685
  -1,751
  -1,820
  -1,893
  -1,969
  -2,049
  -2,133
  -2,221
Cash from investing activities, $m
  120
  -507
  -608
  -719
  -839
  -967
  -1,103
  -1,246
  -1,396
  -1,551
  -1,713
  -1,880
  -2,053
  -2,231
  -2,415
  -2,605
  -2,800
  -3,003
  -3,212
  -3,427
  -3,651
  -3,882
  -4,124
  -4,373
  -4,633
  -4,903
  -5,185
  -5,479
  -5,785
  -6,105
  -6,438
Free cash flow, $m
  120
  -1,210
  -1,478
  -1,795
  -2,148
  -2,538
  -2,965
  -3,426
  -3,922
  -4,452
  -5,014
  -5,608
  -6,232
  -6,888
  -7,573
  -8,289
  -9,034
  -9,810
  -10,617
  -11,456
  -12,327
  -13,232
  -14,172
  -15,149
  -16,164
  -17,220
  -18,318
  -19,461
  -20,650
  -21,890
  -23,182
Issuance/(repayment) of debt, $m
  -110
  -34
  374
  431
  489
  548
  607
  666
  723
  780
  835
  889
  942
  994
  1,044
  1,094
  1,144
  1,194
  1,244
  1,295
  1,347
  1,400
  1,455
  1,512
  1,571
  1,633
  1,698
  1,766
  1,838
  1,914
  1,993
Issuance/(repurchase) of shares, $m
  0
  1,287
  1,152
  1,420
  1,723
  2,062
  2,437
  2,848
  3,293
  3,774
  4,288
  4,835
  5,414
  6,024
  6,665
  7,337
  8,039
  8,772
  9,535
  10,330
  11,156
  12,015
  12,907
  13,834
  14,798
  15,800
  16,841
  17,925
  19,052
  20,226
  21,449
Cash from financing (excl. dividends), $m  
  -119
  1,253
  1,526
  1,851
  2,212
  2,610
  3,044
  3,514
  4,016
  4,554
  5,123
  5,724
  6,356
  7,018
  7,709
  8,431
  9,183
  9,966
  10,779
  11,625
  12,503
  13,415
  14,362
  15,346
  16,369
  17,433
  18,539
  19,691
  20,890
  22,140
  23,442
Total cash flow (excl. dividends), $m
  1
  42
  49
  56
  64
  72
  79
  87
  94
  102
  109
  116
  123
  130
  136
  143
  149
  156
  162
  169
  176
  183
  190
  197
  205
  213
  222
  231
  240
  250
  260
Retained Cash Flow (-), $m
  42
  -1,287
  -1,152
  -1,420
  -1,723
  -2,062
  -2,437
  -2,848
  -3,293
  -3,774
  -4,288
  -4,835
  -5,414
  -6,024
  -6,665
  -7,337
  -8,039
  -8,772
  -9,535
  -10,330
  -11,156
  -12,015
  -12,907
  -13,834
  -14,798
  -15,800
  -16,841
  -17,925
  -19,052
  -20,226
  -21,449
Prev. year cash balance distribution, $m
 
  3
  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
 
  -1,242
  -1,104
  -1,364
  -1,659
  -1,990
  -2,358
  -2,761
  -3,199
  -3,672
  -4,179
  -4,718
  -5,291
  -5,894
  -6,529
  -7,194
  -7,890
  -8,616
  -9,373
  -10,161
  -10,980
  -11,832
  -12,717
  -13,637
  -14,593
  -15,586
  -16,620
  -17,694
  -18,812
  -19,976
  -21,189
Discount rate, %
 
  15.90
  16.70
  17.53
  18.41
  19.33
  20.29
  21.31
  22.37
  23.49
  24.67
  25.90
  27.19
  28.55
  29.98
  31.48
  33.05
  34.71
  36.44
  38.27
  40.18
  42.19
  44.30
  46.51
  48.84
  51.28
  53.84
  56.54
  59.36
  62.33
  65.45
PV of cash for distribution, $m
 
  -1,071
  -810
  -840
  -844
  -823
  -778
  -714
  -636
  -550
  -461
  -375
  -295
  -225
  -166
  -119
  -82
  -54
  -35
  -22
  -13
  -7
  -4
  -2
  -1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  6.3
  0.8
  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
  0.0
  0.0
  0.0
  0.0

Legacy Reserves LP (Legacy) is a master limited partnership company. The Company focuses on the acquisition and development of oil and natural gas properties located in the Permian Basin, East Texas, Rocky Mountain and Mid-Continent regions of the United States. As of December 31, 2016, the Company had proved reserves of approximately 144.8 million barrels of crude oil equivalent (MMBoe), of which 72% were natural gas, 28% were oil and natural gas liquids (NGLs) and 94% were classified as proved developed producing. As of December 31, 2016, the Company owned interests in producing oil and natural gas properties in 627 fields in the Permian Basin, East Texas, Piceance Basin of Colorado, Texas Panhandle, Wyoming, North Dakota, Montana, Oklahoma and various other states, from 10,775 gross productive wells, of which 3,799 were operated and 6,976 were non-operated. The Company's fields and regions include East Texas, Piceance Basin, Spraberry/War San, Lea, Texas Panhandle and Deep Rock.

FINANCIAL RATIOS  of  Legacy Reserves (LGCY)

Valuation Ratios
P/E Ratio -2
Price to Sales 0.4
Price to Book -0.5
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -7.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity -523%
Total Debt to Equity -523%
Interest Coverage 0
Management Effectiveness
Return On Assets -3.8%
Ret/ On Assets - 3 Yr. Avg. -19.9%
Return On Total Capital -5.1%
Ret/ On T. Cap. - 3 Yr. Avg. -24.7%
Return On Equity 27.9%
Return On Equity - 3 Yr. Avg. -109.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 38.5%
Gross Margin - 3 Yr. Avg. 44.4%
EBITDA Margin 30.3%
EBITDA Margin - 3 Yr. Avg. -48.6%
Operating Margin 20.7%
Oper. Margin - 3 Yr. Avg. -86.8%
Pre-Tax Margin -17.5%
Pre-Tax Margin - 3 Yr. Avg. -92.8%
Net Profit Margin -17.8%
Net Profit Margin - 3 Yr. Avg. -92.8%
Effective Tax Rate -1.8%
Eff/ Tax Rate - 3 Yr. Avg. -0.4%
Payout Ratio 0%

LGCY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LGCY stock intrinsic value calculation we used $314 million for the last fiscal year's total revenue generated by Legacy Reserves. The default revenue input number comes from 2016 income statement of Legacy Reserves. 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 LGCY stock valuation model: a) initial revenue growth rate of 27.4% 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 15.9%, whose default value for LGCY is calculated based on our internal credit rating of Legacy Reserves, 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 Legacy Reserves.
    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 LGCY stock the variable cost ratio is equal to 314%.

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 LGCY 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 3.5% for Legacy Reserves.

Corporate tax rate of 27% is the nominal tax rate for Legacy Reserves. 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 LGCY 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 LGCY are equal to 414.5%.

Life of production assets of 8.7 years is the average useful life of capital assets used in Legacy Reserves 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 LGCY is equal to -2.2%. 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 - $-222 million for Legacy Reserves - 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 72.878 million for Legacy Reserves 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 Legacy Reserves at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Top MLP Gainers for Week Ended November 10   [Nov-14-17 05:05PM  Market Realist]
▶ Legacy Reserves LP to Host Earnings Call   [Nov-02-17 08:45AM  ACCESSWIRE]
▶ Which Upstream Company Is the Biggest Gainer This Week?   [Oct-12-17 07:41AM  Market Realist]
▶ HCLP Was among the Top MLP Gainers Last Week   [Aug-08-17 12:28PM  Market Realist]
▶ What Really Happened to Rice Midstream in June?   [Jul-07-17 09:09AM  Market Realist]
▶ US Rig Count Increases for 21 Straight Weeks   [Jun-13-17 10:09AM  Zacks]
▶ 74% of Analysts Call Tesoro Logistics a Buy   [Jun-12-17 02:42PM  Market Realist]
▶ U.S. Rig Count Increases 20 Consecutive Weeks   [Jun-06-17 03:18PM  Zacks]
▶ US Rig Count Increases for 19 Consecutive Weeks   [May-30-17 10:01AM  Zacks]
▶ Conference-OGIS New York for Legacy Reserves LP   [Mar-08-17 05:56PM  at Company Spotlight]
▶ Legacy Reserves LP Announces 2016 Schedules K-1 Available   [Mar-07-17 05:53PM  GlobeNewswire]
▶ Legacy Reserves LP Announces Year-End 2016 Conference Call   [Feb-08-17 04:01PM  GlobeNewswire]
▶ Legacy Looks to New Partnership for Capital (LGCY)   [Dec-06-16 09:10PM  at Investopedia]
▶ Legacy a 'Strong Buy' after Robust 3Q (LGCY)   [Nov-15-16 08:20AM  at Investopedia]
▶ Alerian Index Series June 2016 Index Review   [Jun-10-16 08:30AM  PR Newswire]
Financial statements of LGCY
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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