Intrinsic value of Laredo Petroleum - LPI

Previous Close

$8.83

  Intrinsic Value

$0.18

stock screener

  Rating & Target

str. sell

-98%

Previous close

$8.83

 
Intrinsic value

$0.18

 
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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  28.80
  26.42
  24.28
  22.35
  20.62
  19.05
  17.65
  16.38
  15.25
  14.22
  13.30
  12.47
  11.72
  11.05
  10.44
  9.90
  9.41
  8.97
  8.57
  8.22
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.25
  6.12
Revenue, $m
  597
  769
  972
  1,208
  1,478
  1,783
  2,123
  2,497
  2,906
  3,349
  3,826
  4,334
  4,875
  5,446
  6,048
  6,680
  7,341
  8,032
  8,752
  9,502
  10,283
  11,095
  11,938
  12,815
  13,726
  14,673
  15,657
  16,681
  17,746
  18,854
  20,008
Variable operating expenses, $m
 
  3,940
  4,981
  6,190
  7,574
  9,135
  10,876
  12,795
  14,891
  17,162
  19,602
  22,209
  24,978
  27,906
  30,989
  34,226
  37,615
  41,154
  44,845
  48,690
  52,690
  56,849
  61,172
  65,664
  70,332
  75,184
  80,228
  85,473
  90,929
  96,608
  102,522
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
  3,940
  4,981
  6,190
  7,574
  9,135
  10,876
  12,795
  14,891
  17,162
  19,602
  22,209
  24,978
  27,906
  30,989
  34,226
  37,615
  41,154
  44,845
  48,690
  52,690
  56,849
  61,172
  65,664
  70,332
  75,184
  80,228
  85,473
  90,929
  96,608
  102,522
Operating income, $m
  -89
  -3,171
  -4,009
  -4,982
  -6,096
  -7,352
  -8,753
  -10,298
  -11,985
  -13,812
  -15,777
  -17,875
  -20,103
  -22,460
  -24,942
  -27,547
  -30,274
  -33,123
  -36,093
  -39,187
  -42,407
  -45,754
  -49,233
  -52,849
  -56,606
  -60,511
  -64,570
  -68,792
  -73,184
  -77,754
  -82,514
EBITDA, $m
  59
  -2,981
  -3,769
  -4,684
  -5,730
  -6,912
  -8,229
  -9,681
  -11,267
  -12,985
  -14,831
  -16,803
  -18,899
  -21,114
  -23,447
  -25,896
  -28,460
  -31,138
  -33,931
  -36,839
  -39,866
  -43,012
  -46,283
  -49,682
  -53,214
  -56,885
  -60,701
  -64,670
  -68,798
  -73,095
  -77,569
Interest expense (income), $m
  89
  87
  114
  148
  188
  234
  285
  343
  406
  475
  550
  630
  716
  808
  904
  1,006
  1,112
  1,224
  1,341
  1,463
  1,589
  1,721
  1,858
  2,001
  2,149
  2,303
  2,463
  2,629
  2,802
  2,982
  3,169
Earnings before tax, $m
  -261
  -3,258
  -4,123
  -5,131
  -6,284
  -7,586
  -9,039
  -10,641
  -12,391
  -14,287
  -16,326
  -18,505
  -20,820
  -23,267
  -25,846
  -28,552
  -31,386
  -34,347
  -37,434
  -40,650
  -43,996
  -47,475
  -51,092
  -54,850
  -58,755
  -62,814
  -67,033
  -71,421
  -75,985
  -80,736
  -85,683
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
  -3,258
  -4,123
  -5,131
  -6,284
  -7,586
  -9,039
  -10,641
  -12,391
  -14,287
  -16,326
  -18,505
  -20,820
  -23,267
  -25,846
  -28,552
  -31,386
  -34,347
  -37,434
  -40,650
  -43,996
  -47,475
  -51,092
  -54,850
  -58,755
  -62,814
  -67,033
  -71,421
  -75,985
  -80,736
  -85,683

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
  2,255
  2,851
  3,543
  4,335
  5,228
  6,224
  7,323
  8,523
  9,822
  11,219
  12,711
  14,295
  15,971
  17,736
  19,588
  21,528
  23,553
  25,666
  27,866
  30,155
  32,535
  35,010
  37,581
  40,252
  43,029
  45,916
  48,918
  52,040
  55,291
  58,675
Adjusted assets (=assets-cash), $m
  1,749
  2,255
  2,851
  3,543
  4,335
  5,228
  6,224
  7,323
  8,523
  9,822
  11,219
  12,711
  14,295
  15,971
  17,736
  19,588
  21,528
  23,553
  25,666
  27,866
  30,155
  32,535
  35,010
  37,581
  40,252
  43,029
  45,916
  48,918
  52,040
  55,291
  58,675
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
  1,653
  2,090
  2,597
  3,178
  3,833
  4,563
  5,369
  6,248
  7,201
  8,225
  9,319
  10,481
  11,709
  13,003
  14,361
  15,783
  17,268
  18,817
  20,430
  22,108
  23,853
  25,667
  27,552
  29,511
  31,547
  33,663
  35,864
  38,153
  40,536
  43,018
Working capital, $m
  -33
  -85
  -108
  -134
  -164
  -198
  -236
  -277
  -323
  -372
  -425
  -481
  -541
  -605
  -671
  -741
  -815
  -892
  -971
  -1,055
  -1,141
  -1,231
  -1,325
  -1,422
  -1,524
  -1,629
  -1,738
  -1,852
  -1,970
  -2,093
  -2,221
Total debt, $m
  1,354
  1,782
  2,319
  2,942
  3,654
  4,458
  5,355
  6,344
  7,423
  8,593
  9,850
  11,192
  12,619
  14,127
  15,715
  17,382
  19,128
  20,951
  22,852
  24,832
  26,893
  29,035
  31,262
  33,575
  35,980
  38,479
  41,077
  43,779
  46,589
  49,515
  52,560
Total liabilities, $m
  1,602
  2,029
  2,566
  3,189
  3,901
  4,705
  5,602
  6,591
  7,670
  8,840
  10,097
  11,439
  12,866
  14,374
  15,962
  17,629
  19,375
  21,198
  23,099
  25,079
  27,140
  29,282
  31,509
  33,822
  36,227
  38,726
  41,324
  44,026
  46,836
  49,762
  52,807
Total equity, $m
  181
  225
  285
  354
  433
  523
  622
  732
  852
  982
  1,122
  1,271
  1,430
  1,597
  1,774
  1,959
  2,153
  2,355
  2,567
  2,787
  3,016
  3,254
  3,501
  3,758
  4,025
  4,303
  4,592
  4,892
  5,204
  5,529
  5,867
Total liabilities and equity, $m
  1,783
  2,254
  2,851
  3,543
  4,334
  5,228
  6,224
  7,323
  8,522
  9,822
  11,219
  12,710
  14,296
  15,971
  17,736
  19,588
  21,528
  23,553
  25,666
  27,866
  30,156
  32,536
  35,010
  37,580
  40,252
  43,029
  45,916
  48,918
  52,040
  55,291
  58,674
Debt-to-equity ratio
  7.481
  7.900
  8.130
  8.300
  8.430
  8.530
  8.600
  8.660
  8.710
  8.750
  8.780
  8.810
  8.830
  8.850
  8.860
  8.870
  8.890
  8.900
  8.900
  8.910
  8.920
  8.920
  8.930
  8.930
  8.940
  8.940
  8.950
  8.950
  8.950
  8.960
  8.960
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
  -3,258
  -4,123
  -5,131
  -6,284
  -7,586
  -9,039
  -10,641
  -12,391
  -14,287
  -16,326
  -18,505
  -20,820
  -23,267
  -25,846
  -28,552
  -31,386
  -34,347
  -37,434
  -40,650
  -43,996
  -47,475
  -51,092
  -54,850
  -58,755
  -62,814
  -67,033
  -71,421
  -75,985
  -80,736
  -85,683
Depreciation, amort., depletion, $m
  148
  190
  240
  299
  365
  441
  525
  617
  718
  828
  945
  1,071
  1,205
  1,346
  1,495
  1,651
  1,814
  1,985
  2,163
  2,348
  2,541
  2,742
  2,950
  3,167
  3,392
  3,626
  3,869
  4,122
  4,385
  4,659
  4,945
Funds from operations, $m
  366
  -3,068
  -3,883
  -4,832
  -5,919
  -7,146
  -8,514
  -10,024
  -11,673
  -13,460
  -15,381
  -17,434
  -19,615
  -21,922
  -24,351
  -26,902
  -29,572
  -32,362
  -35,271
  -38,302
  -41,455
  -44,733
  -48,141
  -51,683
  -55,363
  -59,188
  -63,164
  -67,299
  -71,600
  -76,077
  -80,738
Change in working capital, $m
  10
  -19
  -23
  -26
  -30
  -34
  -38
  -42
  -45
  -49
  -53
  -56
  -60
  -63
  -67
  -70
  -73
  -77
  -80
  -83
  -87
  -90
  -94
  -97
  -101
  -105
  -109
  -114
  -118
  -123
  -128
Cash from operations, $m
  356
  -3,049
  -3,860
  -4,806
  -5,889
  -7,112
  -8,476
  -9,982
  -11,628
  -13,411
  -15,328
  -17,377
  -19,555
  -21,858
  -24,284
  -26,832
  -29,499
  -32,285
  -35,191
  -38,218
  -41,368
  -44,643
  -48,048
  -51,585
  -55,262
  -59,083
  -63,055
  -67,185
  -71,482
  -75,954
  -80,610
Maintenance CAPEX, $m
  0
  -148
  -190
  -240
  -299
  -365
  -441
  -525
  -617
  -718
  -828
  -945
  -1,071
  -1,205
  -1,346
  -1,495
  -1,651
  -1,814
  -1,985
  -2,163
  -2,348
  -2,541
  -2,742
  -2,950
  -3,167
  -3,392
  -3,626
  -3,869
  -4,122
  -4,385
  -4,659
New CAPEX, $m
  -498
  -370
  -437
  -507
  -581
  -655
  -730
  -805
  -880
  -953
  -1,024
  -1,094
  -1,162
  -1,229
  -1,294
  -1,358
  -1,422
  -1,485
  -1,549
  -1,613
  -1,678
  -1,745
  -1,814
  -1,885
  -1,959
  -2,036
  -2,116
  -2,201
  -2,290
  -2,383
  -2,481
Cash from investing activities, $m
  -564
  -518
  -627
  -747
  -880
  -1,020
  -1,171
  -1,330
  -1,497
  -1,671
  -1,852
  -2,039
  -2,233
  -2,434
  -2,640
  -2,853
  -3,073
  -3,299
  -3,534
  -3,776
  -4,026
  -4,286
  -4,556
  -4,835
  -5,126
  -5,428
  -5,742
  -6,070
  -6,412
  -6,768
  -7,140
Free cash flow, $m
  -208
  -3,566
  -4,487
  -5,553
  -6,768
  -8,132
  -9,647
  -11,312
  -13,124
  -15,081
  -17,180
  -19,417
  -21,788
  -24,291
  -26,924
  -29,684
  -32,571
  -35,585
  -38,725
  -41,994
  -45,395
  -48,930
  -52,603
  -56,421
  -60,387
  -64,510
  -68,797
  -73,255
  -77,894
  -82,722
  -87,751
Issuance/(repayment) of debt, $m
  -65
  428
  536
  623
  713
  804
  897
  989
  1,080
  1,169
  1,257
  1,343
  1,426
  1,508
  1,588
  1,667
  1,745
  1,823
  1,901
  1,980
  2,060
  2,142
  2,227
  2,314
  2,405
  2,499
  2,598
  2,702
  2,811
  2,925
  3,046
Issuance/(repurchase) of shares, $m
  275
  3,335
  4,183
  5,200
  6,363
  7,676
  9,138
  10,751
  12,511
  14,417
  16,466
  18,654
  20,978
  23,435
  26,022
  28,738
  31,580
  34,549
  37,646
  40,870
  44,225
  47,713
  51,339
  55,107
  59,022
  63,091
  67,322
  71,721
  76,298
  81,061
  86,021
Cash from financing (excl. dividends), $m  
  210
  3,763
  4,719
  5,823
  7,076
  8,480
  10,035
  11,740
  13,591
  15,586
  17,723
  19,997
  22,404
  24,943
  27,610
  30,405
  33,325
  36,372
  39,547
  42,850
  46,285
  49,855
  53,566
  57,421
  61,427
  65,590
  69,920
  74,423
  79,109
  83,986
  89,067
Total cash flow (excl. dividends), $m
  2
  198
  232
  269
  308
  348
  387
  427
  467
  505
  543
  580
  616
  652
  686
  721
  754
  788
  822
  856
  890
  926
  962
  1,000
  1,039
  1,080
  1,123
  1,168
  1,215
  1,264
  1,316
Retained Cash Flow (-), $m
  -50
  -3,335
  -4,183
  -5,200
  -6,363
  -7,676
  -9,138
  -10,751
  -12,511
  -14,417
  -16,466
  -18,654
  -20,978
  -23,435
  -26,022
  -28,738
  -31,580
  -34,549
  -37,646
  -40,870
  -44,225
  -47,713
  -51,339
  -55,107
  -59,022
  -63,091
  -67,322
  -71,721
  -76,298
  -81,061
  -86,021
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
 
  -3,104
  -3,951
  -4,931
  -6,055
  -7,328
  -8,751
  -10,323
  -12,044
  -13,912
  -15,923
  -18,074
  -20,362
  -22,783
  -25,336
  -28,017
  -30,826
  -33,761
  -36,824
  -40,014
  -43,334
  -46,787
  -50,377
  -54,107
  -57,983
  -62,011
  -66,199
  -70,553
  -75,083
  -79,797
  -84,705
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
 
  -2,799
  -3,181
  -3,508
  -3,764
  -3,934
  -4,005
  -3,975
  -3,846
  -3,629
  -3,338
  -2,994
  -2,618
  -2,230
  -1,850
  -1,494
  -1,174
  -897
  -665
  -479
  -334
  -226
  -147
  -93
  -57
  -33
  -19
  -10
  -5
  -3
  -1
Current shareholders' claim on cash, %
  100
  30.7
  10.8
  3.8
  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 -8.2
Price to Sales 3.6
Price to Book 11.8
Price to Tangible Book
Price to Cash Flow 6
Price to Free Cash Flow -15
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 28.8% 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 245.994 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 $2.2 billion.

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COMPANY NEWS

▶ Laredo Petroleum, Inc. to Host Earnings Call   [Feb-15-18 06:40AM  ACCESSWIRE]
▶ Laredo Petroleum beats Street 4Q forecasts   [Feb-14-18 05:57PM  Associated Press]
▶ Pioneer Natural Resources Obliterates Expectations   [Feb-07-18 10:31AM  Motley Fool]
▶ Laredo Petroleum Announces Management Transition   [Feb-05-18 04:15PM  GlobeNewswire]
▶ Here's Why Laredo Petroleum Inc's Stock Is Sinking Today   [Jan-25-18 11:50AM  Motley Fool]
▶ Traders Could Start Booking a Profit in Crude Oil Futures   [Jan-17-18 10:00AM  Market Realist]
▶ How Our Top 5 Upstream Stocks Performed in 2017   [Jan-10-18 11:10AM  Market Realist]
▶ US Dollar Could Pressure Crude Oil Futures in 2018   [Dec-27-17 09:00AM  Market Realist]
▶ US Crude Oil Futures and the S&P 500 Diverged Last Week   [Dec-18-17 09:07AM  Market Realist]
▶ Permian Cash Flows Driven by Low Costs, High Productivity   [Dec-15-17 09:03AM  Market Realist]
▶ FOMCs Meeting Could Impact the Dollar and Oil Prices   [Dec-11-17 11:05AM  Market Realist]
▶ 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]
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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