Intrinsic value of Laredo Petroleum - LPI

Previous Close

$10.39

  Intrinsic Value

$0.19

stock screener

  Rating & Target

str. sell

-98%

Previous close

$10.39

 
Intrinsic value

$0.19

 
Up/down potential

-98%

 
Rating

str. sell

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 2.5

 

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
  27.20
  24.98
  22.98
  21.18
  19.57
  18.11
  16.80
  15.62
  14.56
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
Revenue, $m
  597
  759
  949
  1,167
  1,414
  1,691
  1,997
  2,333
  2,697
  3,090
  3,510
  3,957
  4,431
  4,930
  5,455
  6,005
  6,580
  7,179
  7,804
  8,454
  9,131
  9,834
  10,564
  11,323
  12,112
  12,932
  13,785
  14,672
  15,595
  16,556
  17,557
Variable operating expenses, $m
 
  3,891
  4,863
  5,981
  7,248
  8,666
  10,235
  11,954
  13,821
  15,833
  17,987
  20,278
  22,705
  25,264
  27,952
  30,770
  33,714
  36,787
  39,988
  43,320
  46,785
  50,387
  54,131
  58,021
  62,063
  66,266
  70,635
  75,180
  79,909
  84,833
  89,962
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
  3,891
  4,863
  5,981
  7,248
  8,666
  10,235
  11,954
  13,821
  15,833
  17,987
  20,278
  22,705
  25,264
  27,952
  30,770
  33,714
  36,787
  39,988
  43,320
  46,785
  50,387
  54,131
  58,021
  62,063
  66,266
  70,635
  75,180
  79,909
  84,833
  89,962
Operating income, $m
  -89
  -3,132
  -3,914
  -4,814
  -5,833
  -6,974
  -8,237
  -9,621
  -11,124
  -12,743
  -14,476
  -16,321
  -18,274
  -20,333
  -22,497
  -24,765
  -27,135
  -29,608
  -32,184
  -34,866
  -37,655
  -40,554
  -43,567
  -46,697
  -49,951
  -53,333
  -56,850
  -60,508
  -64,314
  -68,277
  -72,405
EBITDA, $m
  59
  -2,944
  -3,679
  -4,525
  -5,484
  -6,557
  -7,744
  -9,045
  -10,457
  -11,979
  -13,609
  -15,343
  -17,179
  -19,115
  -21,149
  -23,281
  -25,509
  -27,833
  -30,256
  -32,777
  -35,398
  -38,124
  -40,956
  -43,899
  -46,958
  -50,137
  -53,443
  -56,882
  -60,460
  -64,186
  -68,066
Interest expense (income), $m
  89
  87
  112
  145
  181
  223
  270
  322
  378
  440
  506
  577
  653
  733
  817
  906
  999
  1,096
  1,197
  1,302
  1,412
  1,526
  1,645
  1,769
  1,897
  2,030
  2,169
  2,313
  2,463
  2,618
  2,781
Earnings before tax, $m
  -261
  -3,218
  -4,026
  -4,958
  -6,015
  -7,198
  -8,507
  -9,943
  -11,502
  -13,183
  -14,982
  -16,898
  -18,926
  -21,066
  -23,314
  -25,670
  -28,133
  -30,703
  -33,381
  -36,168
  -39,067
  -42,080
  -45,212
  -48,466
  -51,848
  -55,363
  -59,018
  -62,820
  -66,777
  -70,896
  -75,186
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
  -3,218
  -4,026
  -4,958
  -6,015
  -7,198
  -8,507
  -9,943
  -11,502
  -13,183
  -14,982
  -16,898
  -18,926
  -21,066
  -23,314
  -25,670
  -28,133
  -30,703
  -33,381
  -36,168
  -39,067
  -42,080
  -45,212
  -48,466
  -51,848
  -55,363
  -59,018
  -62,820
  -66,777
  -70,896
  -75,186

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
  2,227
  2,783
  3,423
  4,148
  4,960
  5,858
  6,842
  7,910
  9,062
  10,294
  11,606
  12,994
  14,459
  15,998
  17,610
  19,295
  21,054
  22,886
  24,793
  26,776
  28,838
  30,980
  33,206
  35,520
  37,925
  40,426
  43,027
  45,733
  48,551
  51,487
Adjusted assets (=assets-cash), $m
  1,749
  2,227
  2,783
  3,423
  4,148
  4,960
  5,858
  6,842
  7,910
  9,062
  10,294
  11,606
  12,994
  14,459
  15,998
  17,610
  19,295
  21,054
  22,886
  24,793
  26,776
  28,838
  30,980
  33,206
  35,520
  37,925
  40,426
  43,027
  45,733
  48,551
  51,487
Revenue / Adjusted assets
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
  0.341
Average production assets, $m
  1,284
  1,633
  2,041
  2,509
  3,041
  3,636
  4,295
  5,016
  5,799
  6,643
  7,547
  8,509
  9,527
  10,600
  11,729
  12,911
  14,146
  15,436
  16,779
  18,177
  19,631
  21,142
  22,713
  24,345
  26,041
  27,805
  29,638
  31,545
  33,529
  35,595
  37,747
Working capital, $m
  -33
  -84
  -105
  -130
  -157
  -188
  -222
  -259
  -299
  -343
  -390
  -439
  -492
  -547
  -606
  -667
  -730
  -797
  -866
  -938
  -1,014
  -1,092
  -1,173
  -1,257
  -1,344
  -1,435
  -1,530
  -1,629
  -1,731
  -1,838
  -1,949
Total debt, $m
  1,354
  1,757
  2,258
  2,834
  3,486
  4,217
  5,025
  5,910
  6,872
  7,908
  9,018
  10,198
  11,448
  12,766
  14,151
  15,602
  17,119
  18,701
  20,350
  22,067
  23,851
  25,707
  27,635
  29,639
  31,721
  33,885
  36,136
  38,477
  40,913
  43,449
  46,091
Total liabilities, $m
  1,602
  2,004
  2,505
  3,081
  3,733
  4,464
  5,272
  6,157
  7,119
  8,155
  9,265
  10,445
  11,695
  13,013
  14,398
  15,849
  17,366
  18,948
  20,597
  22,314
  24,098
  25,954
  27,882
  29,886
  31,968
  34,132
  36,383
  38,724
  41,160
  43,696
  46,338
Total equity, $m
  181
  223
  278
  342
  415
  496
  586
  684
  791
  906
  1,029
  1,161
  1,299
  1,446
  1,600
  1,761
  1,930
  2,105
  2,289
  2,479
  2,678
  2,884
  3,098
  3,321
  3,552
  3,792
  4,043
  4,303
  4,573
  4,855
  5,149
Total liabilities and equity, $m
  1,783
  2,227
  2,783
  3,423
  4,148
  4,960
  5,858
  6,841
  7,910
  9,061
  10,294
  11,606
  12,994
  14,459
  15,998
  17,610
  19,296
  21,053
  22,886
  24,793
  26,776
  28,838
  30,980
  33,207
  35,520
  37,924
  40,426
  43,027
  45,733
  48,551
  51,487
Debt-to-equity ratio
  7.481
  7.890
  8.110
  8.280
  8.400
  8.500
  8.580
  8.640
  8.690
  8.730
  8.760
  8.790
  8.810
  8.830
  8.850
  8.860
  8.870
  8.880
  8.890
  8.900
  8.910
  8.910
  8.920
  8.930
  8.930
  8.930
  8.940
  8.940
  8.950
  8.950
  8.950
Adjusted equity ratio
  0.085
  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
  -261
  -3,218
  -4,026
  -4,958
  -6,015
  -7,198
  -8,507
  -9,943
  -11,502
  -13,183
  -14,982
  -16,898
  -18,926
  -21,066
  -23,314
  -25,670
  -28,133
  -30,703
  -33,381
  -36,168
  -39,067
  -42,080
  -45,212
  -48,466
  -51,848
  -55,363
  -59,018
  -62,820
  -66,777
  -70,896
  -75,186
Depreciation, amort., depletion, $m
  148
  188
  235
  288
  350
  418
  494
  577
  667
  764
  867
  978
  1,095
  1,218
  1,348
  1,484
  1,626
  1,774
  1,929
  2,089
  2,256
  2,430
  2,611
  2,798
  2,993
  3,196
  3,407
  3,626
  3,854
  4,091
  4,339
Funds from operations, $m
  366
  -3,031
  -3,792
  -4,670
  -5,665
  -6,780
  -8,014
  -9,366
  -10,836
  -12,419
  -14,115
  -15,920
  -17,831
  -19,847
  -21,966
  -24,186
  -26,507
  -28,929
  -31,453
  -34,079
  -36,811
  -39,650
  -42,601
  -45,668
  -48,855
  -52,167
  -55,612
  -59,195
  -62,923
  -66,804
  -70,847
Change in working capital, $m
  10
  -18
  -21
  -24
  -27
  -31
  -34
  -37
  -40
  -44
  -47
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -84
  -88
  -91
  -95
  -98
  -102
  -107
  -111
Cash from operations, $m
  356
  -3,013
  -3,771
  -4,645
  -5,638
  -6,749
  -7,980
  -9,329
  -10,795
  -12,376
  -14,068
  -15,870
  -17,779
  -19,792
  -21,908
  -24,125
  -26,443
  -28,863
  -31,383
  -34,007
  -36,736
  -39,572
  -42,520
  -45,583
  -48,767
  -52,076
  -55,517
  -59,096
  -62,820
  -66,697
  -70,736
Maintenance CAPEX, $m
  0
  -148
  -188
  -235
  -288
  -350
  -418
  -494
  -577
  -667
  -764
  -867
  -978
  -1,095
  -1,218
  -1,348
  -1,484
  -1,626
  -1,774
  -1,929
  -2,089
  -2,256
  -2,430
  -2,611
  -2,798
  -2,993
  -3,196
  -3,407
  -3,626
  -3,854
  -4,091
New CAPEX, $m
  -498
  -349
  -408
  -469
  -532
  -595
  -658
  -721
  -783
  -844
  -904
  -962
  -1,018
  -1,074
  -1,128
  -1,182
  -1,236
  -1,289
  -1,343
  -1,398
  -1,454
  -1,511
  -1,571
  -1,632
  -1,696
  -1,763
  -1,833
  -1,907
  -1,984
  -2,066
  -2,152
Cash from investing activities, $m
  -564
  -497
  -596
  -704
  -820
  -945
  -1,076
  -1,215
  -1,360
  -1,511
  -1,668
  -1,829
  -1,996
  -2,169
  -2,346
  -2,530
  -2,720
  -2,915
  -3,117
  -3,327
  -3,543
  -3,767
  -4,001
  -4,243
  -4,494
  -4,756
  -5,029
  -5,314
  -5,610
  -5,920
  -6,243
Free cash flow, $m
  -208
  -3,509
  -4,366
  -5,349
  -6,458
  -7,693
  -9,056
  -10,544
  -12,155
  -13,886
  -15,735
  -17,699
  -19,775
  -21,961
  -24,254
  -26,655
  -29,163
  -31,778
  -34,501
  -37,333
  -40,279
  -43,340
  -46,521
  -49,826
  -53,262
  -56,833
  -60,546
  -64,410
  -68,431
  -72,617
  -76,979
Issuance/(repayment) of debt, $m
  -65
  403
  501
  576
  653
  730
  808
  886
  962
  1,036
  1,109
  1,180
  1,250
  1,318
  1,385
  1,451
  1,517
  1,583
  1,649
  1,716
  1,785
  1,855
  1,928
  2,004
  2,082
  2,164
  2,251
  2,341
  2,436
  2,536
  2,642
Issuance/(repurchase) of shares, $m
  275
  3,293
  4,082
  5,022
  6,087
  7,279
  8,597
  10,041
  11,609
  13,298
  15,106
  17,029
  19,065
  21,212
  23,468
  25,831
  28,302
  30,879
  33,564
  36,359
  39,265
  42,286
  45,426
  48,689
  52,079
  55,604
  59,269
  63,081
  67,047
  71,177
  75,479
Cash from financing (excl. dividends), $m  
  210
  3,696
  4,583
  5,598
  6,740
  8,009
  9,405
  10,927
  12,571
  14,334
  16,215
  18,209
  20,315
  22,530
  24,853
  27,282
  29,819
  32,462
  35,213
  38,075
  41,050
  44,141
  47,354
  50,693
  54,161
  57,768
  61,520
  65,422
  69,483
  73,713
  78,121
Total cash flow (excl. dividends), $m
  2
  187
  216
  249
  282
  316
  349
  383
  416
  448
  479
  510
  540
  570
  599
  627
  656
  684
  713
  742
  771
  802
  833
  866
  900
  935
  973
  1,012
  1,053
  1,096
  1,142
Retained Cash Flow (-), $m
  -50
  -3,293
  -4,082
  -5,022
  -6,087
  -7,279
  -8,597
  -10,041
  -11,609
  -13,298
  -15,106
  -17,029
  -19,065
  -21,212
  -23,468
  -25,831
  -28,302
  -30,879
  -33,564
  -36,359
  -39,265
  -42,286
  -45,426
  -48,689
  -52,079
  -55,604
  -59,269
  -63,081
  -67,047
  -71,177
  -75,479
Prev. year cash balance distribution, $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
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
 
  -3,073
  -3,866
  -4,773
  -5,805
  -6,963
  -8,248
  -9,658
  -11,193
  -12,850
  -14,626
  -16,519
  -18,525
  -20,643
  -22,869
  -25,204
  -27,646
  -30,195
  -32,852
  -35,617
  -38,494
  -41,485
  -44,593
  -47,823
  -51,179
  -54,668
  -58,296
  -62,069
  -65,995
  -70,081
  -74,337
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
 
  -2,771
  -3,112
  -3,396
  -3,609
  -3,738
  -3,775
  -3,719
  -3,574
  -3,352
  -3,066
  -2,737
  -2,382
  -2,020
  -1,670
  -1,344
  -1,053
  -802
  -593
  -426
  -297
  -200
  -130
  -82
  -50
  -29
  -17
  -9
  -5
  -2
  -1
Current shareholders' claim on cash, %
  100
  31.0
  10.9
  3.9
  1.4
  0.5
  0.2
  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

Laredo Petroleum, Inc. (Laredo) is an independent energy company. The Company is focused on the acquisition, exploration and development of oil and natural gas properties, and the transportation of oil and natural gas from such properties primarily in the Permian Basin in West Texas. It operates through two segments: Exploration and production of oil and natural gas properties, and Midstream and marketing. The exploration and production of oil and natural gas properties are conducted by it through the exploration and development of its acreage in the Permian Basin. As of December 31, 2016, it had assembled 127,847 net acres in the Permian Basin and had total proved reserves, presented on a three-stream basis, of 167,100 thousand of barrels of oil equivalent (MBOE). The Midstream and marketing segment's operations are conducted by its subsidiary, Laredo Midstream Services, LLC, which buys, sells, gathers and transports oil, natural gas and water primarily for the account of Laredo.

FINANCIAL RATIOS  of  Laredo Petroleum (LPI)

Valuation Ratios
P/E Ratio -9.6
Price to Sales 4.2
Price to Book 13.9
Price to Tangible Book
Price to Cash Flow 7.1
Price to Free Cash Flow -17.7
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 27.2% 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 8.7 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 -11.1%. 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 - $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 242.241 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 $2.5 billion.

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COMPANY NEWS

▶ Crude Oil Prices Are Positive before OPECs Meeting   [Nov-30-17 10:55AM  Market Realist]
▶ Should You Buy Laredo Petroleum Inc (LPI)?   [Nov-17-17 10:04AM  Simply Wall St.]
▶ These Energy Stocks Fell the Most Last Week   [Nov-06-17 11:16AM  Market Realist]
▶ Laredo Petroleum misses 3Q profit forecasts   [Nov-01-17 05:39PM  Associated Press]
▶ Oil Jumps To Highest Level Since 2015; Data, Earnings On Tap   [08:42AM  Investor's Business Daily]
▶ [$$] GIP Buying Medallion Gathering & Processing for $1.83 Billion   [Oct-02-17 12:12PM  The Wall Street Journal]
▶ Oil CEOs on Harvey's Impact in 90 Seconds   [Sep-08-17 09:07AM  Bloomberg Video]
▶ Laredo CEO on Harvey Impact, Drilling and Growth Strategy   [Sep-07-17 01:37PM  Bloomberg Video]
▶ Laredo Petroleum misses 2Q profit forecasts   [Aug-07-17 11:59PM  Associated Press]
▶ 3 Stocks Warren Buffett Can't Buy, but You Can   [Jun-12-17 09:40AM  Motley Fool]
▶ Trump Wants to Gut the Agency Behind the Shale Boom   [Jun-07-17 06:00AM  Bloomberg]
▶ 3 Mid-Cap Stocks to Consider   [Jun-01-17 11:44AM  Motley Fool]
▶ 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]
▶ 3 Stocks Ripe for a Buyout   [Apr-15-17 07:26AM  Motley Fool]
▶ Shale Stocks Form Bases, But Outlook Murky: Investing Action Plan   [Apr-10-17 03:21PM  Investor's Business Daily]
▶ 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]
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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