Intrinsic value of Laredo Petroleum - LPI

Previous Close

$11.85

  Intrinsic Value

$0.19

stock screener

  Rating & Target

str. sell

-98%

  Value-price divergence*

-99%

Previous close

$11.85

 
Intrinsic value

$0.19

 
Up/down potential

-98%

 
Rating

str. sell

 
Value-price divergence*

-99%

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

We calculate the intrinsic value of LPI 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 2.9

 

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, %
  -1.65
  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
  597
  955
  1,476
  2,207
  3,202
  4,518
  6,211
  8,337
  10,947
  14,087
  17,792
  22,094
  27,012
  32,559
  38,739
  45,550
  52,985
  61,034
  69,684
  78,921
  88,731
  99,101
  110,020
  121,480
  133,475
  146,005
  159,070
  172,676
  186,833
  201,552
  216,851
Variable operating expenses, $m
 
  4,894
  7,562
  11,309
  16,409
  23,150
  31,826
  42,720
  56,094
  72,179
  91,168
  113,210
  138,410
  166,831
  198,496
  233,396
  271,496
  312,740
  357,063
  404,393
  454,658
  507,792
  563,741
  622,462
  683,927
  748,128
  815,074
  884,792
  957,330
  1,032,752
  1,111,144
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
  686
  4,894
  7,562
  11,309
  16,409
  23,150
  31,826
  42,720
  56,094
  72,179
  91,168
  113,210
  138,410
  166,831
  198,496
  233,396
  271,496
  312,740
  357,063
  404,393
  454,658
  507,792
  563,741
  622,462
  683,927
  748,128
  815,074
  884,792
  957,330
  1,032,752
  1,111,144
Operating income, $m
  -89
  -3,939
  -6,086
  -9,102
  -13,206
  -18,632
  -25,615
  -34,383
  -45,147
  -58,093
  -73,376
  -91,116
  -111,398
  -134,272
  -159,758
  -187,847
  -218,511
  -251,706
  -287,379
  -325,472
  -365,927
  -408,691
  -453,721
  -500,982
  -550,452
  -602,124
  -656,004
  -712,116
  -770,497
  -831,200
  -894,293
EBITDA, $m
  59
  -3,734
  -5,769
  -8,627
  -12,518
  -17,661
  -24,279
  -32,590
  -42,793
  -55,064
  -69,551
  -86,366
  -105,591
  -127,272
  -151,429
  -178,053
  -207,119
  -238,584
  -272,397
  -308,503
  -346,849
  -387,385
  -430,067
  -474,864
  -521,755
  -570,733
  -621,804
  -674,991
  -730,328
  -787,867
  -847,670
Interest expense (income), $m
  89
  87
  148
  237
  363
  534
  759
  1,050
  1,415
  1,862
  2,401
  3,037
  3,775
  4,618
  5,570
  6,630
  7,799
  9,074
  10,455
  11,939
  13,524
  15,207
  16,986
  18,859
  20,825
  22,883
  25,033
  27,274
  29,608
  32,037
  34,562
Earnings before tax, $m
  -261
  -4,026
  -6,234
  -9,339
  -13,569
  -19,166
  -26,374
  -35,432
  -46,561
  -59,955
  -75,777
  -94,153
  -115,173
  -138,891
  -165,328
  -194,477
  -226,309
  -260,780
  -297,834
  -337,411
  -379,450
  -423,898
  -470,707
  -519,841
  -571,277
  -625,007
  -681,037
  -739,390
  -800,106
  -863,237
  -928,855
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
  -261
  -4,026
  -6,234
  -9,339
  -13,569
  -19,166
  -26,374
  -35,432
  -46,561
  -59,955
  -75,777
  -94,153
  -115,173
  -138,891
  -165,328
  -194,477
  -226,309
  -260,780
  -297,834
  -337,411
  -379,450
  -423,898
  -470,707
  -519,841
  -571,277
  -625,007
  -681,037
  -739,390
  -800,106
  -863,237
  -928,855

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  33
  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
  1,782
  2,851
  4,405
  6,588
  9,559
  13,486
  18,541
  24,887
  32,678
  42,049
  53,112
  65,953
  80,633
  97,190
  115,637
  135,969
  158,165
  182,192
  208,013
  235,586
  264,869
  295,823
  328,417
  362,626
  398,434
  435,835
  474,836
  515,451
  557,709
  601,648
  647,316
Adjusted assets (=assets-cash), $m
  1,749
  2,851
  4,405
  6,588
  9,559
  13,486
  18,541
  24,887
  32,678
  42,049
  53,112
  65,953
  80,633
  97,190
  115,637
  135,969
  158,165
  182,192
  208,013
  235,586
  264,869
  295,823
  328,417
  362,626
  398,434
  435,835
  474,836
  515,451
  557,709
  601,648
  647,316
Revenue / Adjusted assets
  0.341
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
  0.335
Average production assets, $m
  1,284
  2,054
  3,173
  4,745
  6,885
  9,714
  13,354
  17,925
  23,537
  30,286
  38,254
  47,502
  58,076
  70,001
  83,288
  97,932
  113,918
  131,224
  149,822
  169,681
  190,772
  213,067
  236,542
  261,181
  286,972
  313,910
  342,000
  371,254
  401,690
  433,337
  466,229
Working capital, $m
  -33
  -96
  -148
  -221
  -320
  -452
  -621
  -834
  -1,095
  -1,409
  -1,779
  -2,209
  -2,701
  -3,256
  -3,874
  -4,555
  -5,299
  -6,103
  -6,968
  -7,892
  -8,873
  -9,910
  -11,002
  -12,148
  -13,348
  -14,600
  -15,907
  -17,268
  -18,683
  -20,155
  -21,685
Total debt, $m
  1,354
  2,314
  3,709
  5,669
  8,337
  11,864
  16,403
  22,102
  29,098
  37,513
  47,447
  58,978
  72,162
  87,030
  103,595
  121,853
  141,785
  163,362
  186,549
  211,309
  237,605
  265,402
  294,671
  325,391
  357,546
  391,133
  426,155
  462,628
  500,576
  540,033
  581,043
Total liabilities, $m
  1,602
  2,561
  3,956
  5,916
  8,584
  12,111
  16,650
  22,349
  29,345
  37,760
  47,694
  59,225
  72,409
  87,277
  103,842
  122,100
  142,032
  163,609
  186,796
  211,556
  237,852
  265,649
  294,918
  325,638
  357,793
  391,380
  426,402
  462,875
  500,823
  540,280
  581,290
Total equity, $m
  181
  291
  449
  672
  975
  1,376
  1,891
  2,538
  3,333
  4,289
  5,417
  6,727
  8,225
  9,913
  11,795
  13,869
  16,133
  18,584
  21,217
  24,030
  27,017
  30,174
  33,499
  36,988
  40,640
  44,455
  48,433
  52,576
  56,886
  61,368
  66,026
Total liabilities and equity, $m
  1,783
  2,852
  4,405
  6,588
  9,559
  13,487
  18,541
  24,887
  32,678
  42,049
  53,111
  65,952
  80,634
  97,190
  115,637
  135,969
  158,165
  182,193
  208,013
  235,586
  264,869
  295,823
  328,417
  362,626
  398,433
  435,835
  474,835
  515,451
  557,709
  601,648
  647,316
Debt-to-equity ratio
  7.481
  7.950
  8.250
  8.440
  8.550
  8.620
  8.670
  8.710
  8.730
  8.750
  8.760
  8.770
  8.770
  8.780
  8.780
  8.790
  8.790
  8.790
  8.790
  8.790
  8.790
  8.800
  8.800
  8.800
  8.800
  8.800
  8.800
  8.800
  8.800
  8.800
  8.800
Adjusted equity ratio
  0.085
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102
  0.102

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -261
  -4,026
  -6,234
  -9,339
  -13,569
  -19,166
  -26,374
  -35,432
  -46,561
  -59,955
  -75,777
  -94,153
  -115,173
  -138,891
  -165,328
  -194,477
  -226,309
  -260,780
  -297,834
  -337,411
  -379,450
  -423,898
  -470,707
  -519,841
  -571,277
  -625,007
  -681,037
  -739,390
  -800,106
  -863,237
  -928,855
Depreciation, amort., depletion, $m
  148
  205
  317
  475
  688
  971
  1,335
  1,793
  2,354
  3,029
  3,825
  4,750
  5,808
  7,000
  8,329
  9,793
  11,392
  13,122
  14,982
  16,968
  19,077
  21,307
  23,654
  26,118
  28,697
  31,391
  34,200
  37,125
  40,169
  43,334
  46,623
Funds from operations, $m
  366
  -3,821
  -5,917
  -8,865
  -12,881
  -18,194
  -25,039
  -33,640
  -44,207
  -56,926
  -71,951
  -89,403
  -109,365
  -131,891
  -156,999
  -184,684
  -214,917
  -247,658
  -282,852
  -320,443
  -360,373
  -402,591
  -447,053
  -493,723
  -542,580
  -593,616
  -646,837
  -702,265
  -759,937
  -819,903
  -882,232
Change in working capital, $m
  10
  -36
  -52
  -73
  -100
  -132
  -169
  -213
  -261
  -314
  -371
  -430
  -492
  -555
  -618
  -681
  -744
  -805
  -865
  -924
  -981
  -1,037
  -1,092
  -1,146
  -1,200
  -1,253
  -1,307
  -1,361
  -1,416
  -1,472
  -1,530
Cash from operations, $m
  356
  -3,785
  -5,865
  -8,792
  -12,781
  -18,063
  -24,869
  -33,427
  -43,946
  -56,613
  -71,581
  -88,972
  -108,873
  -131,336
  -156,381
  -184,002
  -214,174
  -246,853
  -281,987
  -319,519
  -359,392
  -401,554
  -445,961
  -492,577
  -541,380
  -592,363
  -645,530
  -700,904
  -758,521
  -818,431
  -880,702
Maintenance CAPEX, $m
  0
  -128
  -205
  -317
  -475
  -688
  -971
  -1,335
  -1,793
  -2,354
  -3,029
  -3,825
  -4,750
  -5,808
  -7,000
  -8,329
  -9,793
  -11,392
  -13,122
  -14,982
  -16,968
  -19,077
  -21,307
  -23,654
  -26,118
  -28,697
  -31,391
  -34,200
  -37,125
  -40,169
  -43,334
New CAPEX, $m
  -498
  -770
  -1,119
  -1,572
  -2,140
  -2,829
  -3,640
  -4,571
  -5,612
  -6,749
  -7,968
  -9,249
  -10,574
  -11,925
  -13,286
  -14,644
  -15,986
  -17,306
  -18,598
  -19,859
  -21,091
  -22,295
  -23,476
  -24,639
  -25,791
  -26,938
  -28,090
  -29,253
  -30,436
  -31,647
  -32,893
Cash from investing activities, $m
  -564
  -898
  -1,324
  -1,889
  -2,615
  -3,517
  -4,611
  -5,906
  -7,405
  -9,103
  -10,997
  -13,074
  -15,324
  -17,733
  -20,286
  -22,973
  -25,779
  -28,698
  -31,720
  -34,841
  -38,059
  -41,372
  -44,783
  -48,293
  -51,909
  -55,635
  -59,481
  -63,453
  -67,561
  -71,816
  -76,227
Free cash flow, $m
  -208
  -4,683
  -7,189
  -10,681
  -15,395
  -21,580
  -29,481
  -39,334
  -51,351
  -65,715
  -82,577
  -102,046
  -124,198
  -149,069
  -176,667
  -206,975
  -239,953
  -275,551
  -313,707
  -354,360
  -397,451
  -442,927
  -490,743
  -540,870
  -593,289
  -647,998
  -705,011
  -764,358
  -826,082
  -890,247
  -956,929
Issuance/(repayment) of debt, $m
  -65
  960
  1,395
  1,960
  2,668
  3,527
  4,539
  5,699
  6,997
  8,415
  9,934
  11,531
  13,183
  14,868
  16,565
  18,258
  19,932
  21,577
  23,187
  24,760
  26,296
  27,797
  29,269
  30,719
  32,155
  33,587
  35,022
  36,473
  37,948
  39,457
  41,010
Issuance/(repurchase) of shares, $m
  275
  4,136
  6,393
  9,562
  13,872
  19,566
  26,890
  36,080
  47,356
  60,911
  76,905
  95,463
  116,670
  140,580
  167,209
  196,551
  228,573
  263,231
  300,468
  340,223
  382,437
  427,055
  474,032
  523,330
  574,929
  628,822
  685,015
  743,533
  804,416
  867,719
  933,513
Cash from financing (excl. dividends), $m  
  210
  5,096
  7,788
  11,522
  16,540
  23,093
  31,429
  41,779
  54,353
  69,326
  86,839
  106,994
  129,853
  155,448
  183,774
  214,809
  248,505
  284,808
  323,655
  364,983
  408,733
  454,852
  503,301
  554,049
  607,084
  662,409
  720,037
  780,006
  842,364
  907,176
  974,523
Total cash flow (excl. dividends), $m
  2
  412
  599
  841
  1,145
  1,513
  1,947
  2,445
  3,002
  3,610
  4,262
  4,947
  5,656
  6,379
  7,107
  7,833
  8,551
  9,257
  9,948
  10,623
  11,282
  11,926
  12,558
  13,180
  13,796
  14,410
  15,026
  15,648
  16,281
  16,928
  17,595
Retained Cash Flow (-), $m
  -50
  -4,136
  -6,393
  -9,562
  -13,872
  -19,566
  -26,890
  -36,080
  -47,356
  -60,911
  -76,905
  -95,463
  -116,670
  -140,580
  -167,209
  -196,551
  -228,573
  -263,231
  -300,468
  -340,223
  -382,437
  -427,055
  -474,032
  -523,330
  -574,929
  -628,822
  -685,015
  -743,533
  -804,416
  -867,719
  -933,513
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
 
  -3,724
  -5,794
  -8,721
  -12,728
  -18,053
  -24,942
  -33,635
  -44,354
  -57,301
  -72,643
  -90,515
  -111,014
  -134,201
  -160,102
  -188,717
  -220,022
  -253,974
  -290,520
  -329,600
  -371,155
  -415,130
  -461,474
  -510,150
  -561,133
  -614,412
  -669,989
  -727,885
  -788,135
  -850,790
  -915,918
Discount rate, %
 
  10.90
  11.45
  12.02
  12.62
  13.25
  13.91
  14.61
  15.34
  16.10
  16.91
  17.75
  18.64
  19.57
  20.55
  21.58
  22.66
  23.79
  24.98
  26.23
  27.54
  28.92
  30.37
  31.89
  33.48
  35.15
  36.91
  38.76
  40.69
  42.73
  44.87
PV of cash for distribution, $m
 
  -3,358
  -4,665
  -6,204
  -7,912
  -9,691
  -11,417
  -12,951
  -14,164
  -14,946
  -15,230
  -14,995
  -14,272
  -13,135
  -11,692
  -10,065
  -8,379
  -6,744
  -5,246
  -3,942
  -2,860
  -2,002
  -1,350
  -877
  -548
  -329
  -190
  -105
  -56
  -28
  -14
Current shareholders' claim on cash, %
  100
  30.4
  9.5
  3.0
  1.0
  0.3
  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

Laredo Petroleum, Inc. operates as an independent energy company in the United States. It operates through two segments, Exploration and Production of Oil and Natural Gas Properties; and Midstream and Marketing. It focuses on the acquisition, exploration, and development of oil and natural gas properties; and the transportation of oil and natural gas primarily in the Permian Basin in West Texas, as well as rig fuel, natural gas lift, and water delivery and takeaway services. As of December 31, 2016, it had assembled 127,847 net acres in the Permian Basin; and had total proved reserves of 167,100 thousand barrels of oil equivalent. The company was formerly known as Laredo Petroleum Holdings, Inc. and changed its name to Laredo Petroleum, Inc. in December 2013. Laredo Petroleum, Inc. was founded in 2006 and is headquartered in Tulsa, Oklahoma.

FINANCIAL RATIOS  of  Laredo Petroleum (LPI)

Valuation Ratios
P/E Ratio -11
Price to Sales 4.8
Price to Book 15.8
Price to Tangible Book
Price to Cash Flow 8.1
Price to Free Cash Flow -20.2
Growth Rates
Sales Growth Rate -1.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21.3%
Cap. Spend. - 3 Yr. Gr. Rate -8.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 748.1%
Total Debt to Equity 748.1%
Interest Coverage -2
Management Effectiveness
Return On Assets -9.6%
Ret/ On Assets - 3 Yr. Avg. -24.3%
Return On Total Capital -16.9%
Ret/ On T. Cap. - 3 Yr. Avg. -32.7%
Return On Equity -167.3%
Return On Equity - 3 Yr. Avg. -136.5%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 53.3%
Gross Margin - 3 Yr. Avg. 57.7%
EBITDA Margin -4%
EBITDA Margin - 3 Yr. Avg. -78.2%
Operating Margin -14.9%
Oper. Margin - 3 Yr. Avg. -132.9%
Pre-Tax Margin -43.7%
Pre-Tax Margin - 3 Yr. Avg. -127.6%
Net Profit Margin -43.7%
Net Profit Margin - 3 Yr. Avg. -124.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 15.2%
Payout Ratio 0%

LPI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LPI stock intrinsic value calculation we used $597 million for the last fiscal year's total revenue generated by Laredo Petroleum. The default revenue input number comes from 2016 income statement of Laredo Petroleum. 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 LPI 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 10.9%, whose default value for LPI is calculated based on our internal credit rating of Laredo Petroleum, 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 Laredo Petroleum.
    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 LPI stock the variable cost ratio is equal to 512.4%.

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 LPI 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 6.4% for Laredo Petroleum.

Corporate tax rate of 27% is the nominal tax rate for Laredo Petroleum. 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 LPI 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 LPI are equal to 215%.

Life of production assets of 10 years is the average useful life of capital assets used in Laredo Petroleum 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 LPI 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 - $181 million for Laredo Petroleum - 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 240.638 million for Laredo Petroleum 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 Laredo Petroleum at the current share price and the inputted number of shares is $2.9 billion.

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COMPANY NEWS

▶ Laredo Petroleum misses 2Q profit forecasts   [Aug-07-17 11:59PM  Associated Press]
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▶ Laredo Petroleum misses 1Q profit forecasts   [May-03-17 05:11PM  Associated Press]
▶ Why Oil Markets Are Not Recovering Much Faster   [Apr-16-17 04:00PM  Oilprice.com]
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▶ Analyzing Libyas Crude Oil Production   [Mar-07-17 09:45AM  Market Realist]
▶ U.S. Shale Production Growing At An Unprecedented Pace   [Mar-05-17 07:00PM  Oilprice.com]
▶ Libyas Crude Oil Production Hit a 3-Year High   [07:38AM  Market Realist]
▶ Five Potential Oil & Gas Takeover Targets In 2017   [Jan-03-17 07:34PM  at Forbes]
▶ How Laredo Petroleum Inc (LPI) Stacks Up Against Its Peers   [Dec-10-16 01:53PM  at Insider Monkey]
Stock chart of LPI Financial statements of LPI
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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