Intrinsic value of National Fuel Gas - NFG

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$55.79

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$55.79

 
Intrinsic value

$4.43

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of NFG 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 4.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -17.55
  12.80
  12.02
  11.32
  10.69
  10.12
  9.61
  9.15
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
  6.98
  6.78
  6.61
  6.45
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
Revenue, $m
  1,439
  1,638
  1,835
  2,042
  2,261
  2,489
  2,728
  2,978
  3,238
  3,509
  3,790
  4,083
  4,387
  4,703
  5,031
  5,372
  5,727
  6,096
  6,481
  6,880
  7,297
  7,731
  8,184
  8,656
  9,148
  9,663
  10,200
  10,761
  11,348
  11,962
  12,604
Variable operating expenses, $m
 
  2,206
  2,471
  2,751
  3,045
  3,353
  3,675
  4,011
  4,361
  4,725
  5,104
  5,498
  5,907
  6,333
  6,775
  7,235
  7,713
  8,210
  8,727
  9,266
  9,827
  10,411
  11,020
  11,656
  12,320
  13,012
  13,736
  14,492
  15,282
  16,108
  16,973
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
  1,869
  2,206
  2,471
  2,751
  3,045
  3,353
  3,675
  4,011
  4,361
  4,725
  5,104
  5,498
  5,907
  6,333
  6,775
  7,235
  7,713
  8,210
  8,727
  9,266
  9,827
  10,411
  11,020
  11,656
  12,320
  13,012
  13,736
  14,492
  15,282
  16,108
  16,973
Operating income, $m
  -417
  -568
  -637
  -709
  -784
  -863
  -946
  -1,033
  -1,123
  -1,217
  -1,314
  -1,415
  -1,521
  -1,630
  -1,744
  -1,862
  -1,985
  -2,113
  -2,247
  -2,385
  -2,530
  -2,680
  -2,837
  -3,001
  -3,171
  -3,350
  -3,536
  -3,730
  -3,934
  -4,147
  -4,369
EBITDA, $m
  -168
  -288
  -322
  -359
  -397
  -437
  -479
  -523
  -569
  -616
  -665
  -717
  -770
  -826
  -883
  -943
  -1,006
  -1,070
  -1,138
  -1,208
  -1,281
  -1,357
  -1,437
  -1,520
  -1,606
  -1,697
  -1,791
  -1,890
  -1,993
  -2,100
  -2,213
Interest expense (income), $m
  120
  121
  151
  183
  217
  253
  291
  330
  371
  413
  458
  504
  552
  602
  653
  707
  763
  821
  882
  945
  1,010
  1,079
  1,150
  1,224
  1,301
  1,382
  1,466
  1,554
  1,646
  1,743
  1,843
Earnings before tax, $m
  -524
  -689
  -788
  -892
  -1,002
  -1,117
  -1,237
  -1,363
  -1,494
  -1,630
  -1,772
  -1,919
  -2,072
  -2,232
  -2,397
  -2,570
  -2,749
  -2,935
  -3,128
  -3,330
  -3,540
  -3,759
  -3,987
  -4,224
  -4,473
  -4,732
  -5,002
  -5,285
  -5,580
  -5,889
  -6,212
Tax expense, $m
  -233
  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
  -291
  -689
  -788
  -892
  -1,002
  -1,117
  -1,237
  -1,363
  -1,494
  -1,630
  -1,772
  -1,919
  -2,072
  -2,232
  -2,397
  -2,570
  -2,749
  -2,935
  -3,128
  -3,330
  -3,540
  -3,759
  -3,987
  -4,224
  -4,473
  -4,732
  -5,002
  -5,285
  -5,580
  -5,889
  -6,212

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  130
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  5,636
  6,204
  6,950
  7,736
  8,563
  9,429
  10,335
  11,280
  12,265
  13,290
  14,356
  15,465
  16,616
  17,813
  19,057
  20,350
  21,694
  23,093
  24,548
  26,062
  27,640
  29,284
  30,998
  32,786
  34,652
  36,601
  38,636
  40,762
  42,985
  45,310
  47,742
Adjusted assets (=assets-cash), $m
  5,506
  6,204
  6,950
  7,736
  8,563
  9,429
  10,335
  11,280
  12,265
  13,290
  14,356
  15,465
  16,616
  17,813
  19,057
  20,350
  21,694
  23,093
  24,548
  26,062
  27,640
  29,284
  30,998
  32,786
  34,652
  36,601
  38,636
  40,762
  42,985
  45,310
  47,742
Revenue / Adjusted assets
  0.261
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
  0.264
Average production assets, $m
  4,894
  5,520
  6,183
  6,883
  7,618
  8,389
  9,195
  10,036
  10,912
  11,824
  12,773
  13,759
  14,783
  15,848
  16,955
  18,105
  19,301
  20,545
  21,840
  23,187
  24,591
  26,054
  27,579
  29,169
  30,830
  32,563
  34,373
  36,265
  38,243
  40,311
  42,475
Working capital, $m
  109
  -23
  -26
  -29
  -32
  -35
  -38
  -42
  -45
  -49
  -53
  -57
  -61
  -66
  -70
  -75
  -80
  -85
  -91
  -96
  -102
  -108
  -115
  -121
  -128
  -135
  -143
  -151
  -159
  -167
  -176
Total debt, $m
  2,086
  2,605
  3,161
  3,748
  4,365
  5,011
  5,687
  6,392
  7,127
  7,892
  8,687
  9,514
  10,373
  11,266
  12,194
  13,158
  14,161
  15,204
  16,290
  17,420
  18,597
  19,823
  21,102
  22,436
  23,828
  25,281
  26,799
  28,386
  30,044
  31,778
  33,592
Total liabilities, $m
  4,109
  4,628
  5,184
  5,771
  6,388
  7,034
  7,710
  8,415
  9,150
  9,915
  10,710
  11,537
  12,396
  13,289
  14,217
  15,181
  16,184
  17,227
  18,313
  19,443
  20,620
  21,846
  23,125
  24,459
  25,851
  27,304
  28,822
  30,409
  32,067
  33,801
  35,615
Total equity, $m
  1,527
  1,576
  1,765
  1,965
  2,175
  2,395
  2,625
  2,865
  3,115
  3,376
  3,647
  3,928
  4,221
  4,525
  4,841
  5,169
  5,510
  5,866
  6,235
  6,620
  7,021
  7,438
  7,874
  8,328
  8,802
  9,297
  9,813
  10,354
  10,918
  11,509
  12,126
Total liabilities and equity, $m
  5,636
  6,204
  6,949
  7,736
  8,563
  9,429
  10,335
  11,280
  12,265
  13,291
  14,357
  15,465
  16,617
  17,814
  19,058
  20,350
  21,694
  23,093
  24,548
  26,063
  27,641
  29,284
  30,999
  32,787
  34,653
  36,601
  38,635
  40,763
  42,985
  45,310
  47,741
Debt-to-equity ratio
  1.366
  1.650
  1.790
  1.910
  2.010
  2.090
  2.170
  2.230
  2.290
  2.340
  2.380
  2.420
  2.460
  2.490
  2.520
  2.550
  2.570
  2.590
  2.610
  2.630
  2.650
  2.670
  2.680
  2.690
  2.710
  2.720
  2.730
  2.740
  2.750
  2.760
  2.770
Adjusted equity ratio
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254
  0.254

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -291
  -689
  -788
  -892
  -1,002
  -1,117
  -1,237
  -1,363
  -1,494
  -1,630
  -1,772
  -1,919
  -2,072
  -2,232
  -2,397
  -2,570
  -2,749
  -2,935
  -3,128
  -3,330
  -3,540
  -3,759
  -3,987
  -4,224
  -4,473
  -4,732
  -5,002
  -5,285
  -5,580
  -5,889
  -6,212
Depreciation, amort., depletion, $m
  249
  281
  314
  350
  387
  426
  467
  510
  554
  601
  649
  698
  750
  804
  861
  919
  980
  1,043
  1,109
  1,177
  1,248
  1,323
  1,400
  1,481
  1,565
  1,653
  1,745
  1,841
  1,941
  2,046
  2,156
Funds from operations, $m
  501
  -409
  -473
  -542
  -614
  -690
  -770
  -853
  -939
  -1,029
  -1,123
  -1,221
  -1,322
  -1,427
  -1,537
  -1,651
  -1,769
  -1,892
  -2,020
  -2,153
  -2,292
  -2,436
  -2,587
  -2,744
  -2,908
  -3,079
  -3,257
  -3,444
  -3,639
  -3,843
  -4,056
Change in working capital, $m
  -88
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Cash from operations, $m
  589
  -844
  -471
  -539
  -611
  -687
  -766
  -849
  -936
  -1,026
  -1,119
  -1,217
  -1,318
  -1,423
  -1,532
  -1,646
  -1,764
  -1,887
  -2,014
  -2,147
  -2,286
  -2,430
  -2,580
  -2,737
  -2,901
  -3,071
  -3,250
  -3,436
  -3,631
  -3,834
  -4,047
Maintenance CAPEX, $m
  0
  -248
  -280
  -314
  -349
  -387
  -426
  -467
  -509
  -554
  -600
  -648
  -698
  -750
  -804
  -861
  -919
  -980
  -1,043
  -1,109
  -1,177
  -1,248
  -1,323
  -1,400
  -1,481
  -1,565
  -1,653
  -1,745
  -1,841
  -1,941
  -2,046
New CAPEX, $m
  -582
  -626
  -663
  -700
  -736
  -771
  -806
  -841
  -876
  -912
  -949
  -986
  -1,025
  -1,065
  -1,107
  -1,150
  -1,196
  -1,244
  -1,295
  -1,348
  -1,404
  -1,463
  -1,525
  -1,591
  -1,660
  -1,733
  -1,810
  -1,892
  -1,978
  -2,068
  -2,164
Cash from investing activities, $m
  -454
  -874
  -943
  -1,014
  -1,085
  -1,158
  -1,232
  -1,308
  -1,385
  -1,466
  -1,549
  -1,634
  -1,723
  -1,815
  -1,911
  -2,011
  -2,115
  -2,224
  -2,338
  -2,457
  -2,581
  -2,711
  -2,848
  -2,991
  -3,141
  -3,298
  -3,463
  -3,637
  -3,819
  -4,009
  -4,210
Free cash flow, $m
  135
  -1,719
  -1,414
  -1,553
  -1,696
  -1,845
  -1,998
  -2,157
  -2,321
  -2,492
  -2,668
  -2,851
  -3,041
  -3,238
  -3,443
  -3,657
  -3,879
  -4,110
  -4,352
  -4,604
  -4,866
  -5,141
  -5,428
  -5,728
  -6,042
  -6,370
  -6,713
  -7,073
  -7,449
  -7,844
  -8,257
Issuance/(repayment) of debt, $m
  0
  519
  556
  587
  617
  646
  676
  705
  735
  765
  795
  827
  859
  893
  928
  965
  1,003
  1,043
  1,085
  1,130
  1,177
  1,227
  1,279
  1,334
  1,392
  1,453
  1,518
  1,586
  1,658
  1,734
  1,814
Issuance/(repurchase) of shares, $m
  14
  1,249
  1,047
  1,166
  1,289
  1,418
  1,552
  1,692
  1,837
  1,987
  2,143
  2,306
  2,474
  2,649
  2,831
  3,021
  3,218
  3,422
  3,636
  3,858
  4,090
  4,332
  4,585
  4,848
  5,123
  5,411
  5,712
  6,027
  6,356
  6,700
  7,061
Cash from financing (excl. dividends), $m  
  16
  1,768
  1,603
  1,753
  1,906
  2,064
  2,228
  2,397
  2,572
  2,752
  2,938
  3,133
  3,333
  3,542
  3,759
  3,986
  4,221
  4,465
  4,721
  4,988
  5,267
  5,559
  5,864
  6,182
  6,515
  6,864
  7,230
  7,613
  8,014
  8,434
  8,875
Total cash flow (excl. dividends), $m
  151
  -1,200
  -858
  -966
  -1,079
  -1,198
  -1,322
  -1,452
  -1,587
  -1,727
  -1,873
  -2,024
  -2,182
  -2,345
  -2,515
  -2,692
  -2,876
  -3,067
  -3,266
  -3,474
  -3,689
  -3,915
  -4,149
  -4,394
  -4,649
  -4,916
  -5,195
  -5,486
  -5,791
  -6,110
  -6,443
Retained Cash Flow (-), $m
  498
  -179
  -189
  -200
  -210
  -220
  -230
  -240
  -250
  -260
  -271
  -282
  -293
  -304
  -316
  -328
  -341
  -355
  -370
  -385
  -401
  -418
  -435
  -454
  -474
  -495
  -517
  -540
  -565
  -590
  -618
Prev. year cash balance distribution, $m
 
  130
  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
 
  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
Discount rate, %
 
  7.20
  7.56
  7.94
  8.33
  8.75
  9.19
  9.65
  10.13
  10.64
  11.17
  11.73
  12.31
  12.93
  13.58
  14.26
  14.97
  15.72
  16.50
  17.33
  18.19
  19.10
  20.06
  21.06
  22.11
  23.22
  24.38
  25.60
  26.88
  28.22
  29.64
PV of cash for 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
Current shareholders' claim on cash, %
  100
  77.8
  64.2
  53.1
  43.9
  36.3
  30.1
  25.0
  20.7
  17.2
  14.3
  11.9
  9.9
  8.3
  6.9
  5.8
  4.8
  4.0
  3.3
  2.8
  2.3
  2.0
  1.6
  1.4
  1.1
  1.0
  0.8
  0.7
  0.6
  0.5
  0.4

National Fuel Gas Company operates as a diversified energy company. The company operates in five segments: Exploration and Production, Pipeline and Storage, Gathering, Utility, and Energy Marketing. The Exploration and Production segment explores for, develops, and produces natural gas and oil reserves in California in the Appalachian region of the United States. As of September 30, 2016, it had proved developed and undeveloped reserves of 29,009 thousand barrels of oil and 1,674,575 million cubic feet of natural gas. The Pipeline and Storage segment provides interstate natural gas transportation and storage services through an integrated gas pipeline system extending from Southwestern Pennsylvania to the New York-Canadian border, and eastward to Ellisburg and Leidy, Pennsylvania; and owns and operates 27 underground natural gas storage fields, as well as 4 other underground natural gas storage fields. This segment also transports natural gas for National Fuel Gas Distribution Corporation, as well as for other utilities, industrial customers, and power producers in New York State; and owns and operates the Empire Pipeline, a 249-mile integrated pipeline system. The Gathering segment builds, owns, and operates natural gas processing and pipeline gathering facilities in the Appalachian region. The Utility segment sells natural gas or provides natural gas transportation services to approximately 742,235 customers in Buffalo, Niagara Falls, and Jamestown, New York; and Erie and Sharon, Pennsylvania. The Energy Marketing segment markets natural gas to industrial, wholesale, commercial, public authority, and residential customers primarily in western and central New York, and northwestern Pennsylvania. As of September 30, 2016, the company also owned approximately 93,000 acres of timber property; and managed an approximately 3,000 additional acres of timber cutting rights. National Fuel Gas Company was founded in 1902 and is based in Williamsville, New York.

FINANCIAL RATIOS  of  National Fuel Gas (NFG)

Valuation Ratios
P/E Ratio -16.3
Price to Sales 3.3
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 8.1
Price to Free Cash Flow 678.4
Growth Rates
Sales Growth Rate -17.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -42.8%
Cap. Spend. - 3 Yr. Gr. Rate -3.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 136.6%
Total Debt to Equity 136.6%
Interest Coverage -3
Management Effectiveness
Return On Assets -3.7%
Ret/ On Assets - 3 Yr. Avg. -1%
Return On Total Capital -7.5%
Ret/ On T. Cap. - 3 Yr. Avg. -3.1%
Return On Equity -16.4%
Return On Equity - 3 Yr. Avg. -6.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin -10.7%
EBITDA Margin - 3 Yr. Avg. 6.5%
Operating Margin -28.7%
Oper. Margin - 3 Yr. Avg. -12.1%
Pre-Tax Margin -36.1%
Pre-Tax Margin - 3 Yr. Avg. -17.5%
Net Profit Margin -20%
Net Profit Margin - 3 Yr. Avg. -9.1%
Effective Tax Rate 44.5%
Eff/ Tax Rate - 3 Yr. Avg. 43%
Payout Ratio -46.4%

NFG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NFG stock intrinsic value calculation we used $1452 million for the last fiscal year's total revenue generated by National Fuel Gas. The default revenue input number comes from 2016 income statement of National Fuel Gas. 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 NFG stock valuation model: a) initial revenue growth rate of 12.8% 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 7.2%, whose default value for NFG is calculated based on our internal credit rating of National Fuel Gas, 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 National Fuel Gas.
    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 NFG stock the variable cost ratio is equal to 134.7%.

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 NFG 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 5.8% for National Fuel Gas.

Corporate tax rate of 27% is the nominal tax rate for National Fuel Gas. 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 NFG 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 NFG are equal to 337%.

Life of production assets of 19.7 years is the average useful life of capital assets used in National Fuel Gas 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 NFG is equal to -1.4%. 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 - $1527 million for National Fuel Gas - 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 85.877 million for National Fuel Gas 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 National Fuel Gas at the current share price and the inputted number of shares is $4.8 billion.


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COMPANY NEWS

▶ National Fuel Gas Company Teleconference Announcement   [Apr-06-17 02:28PM  Business Wire]
▶ National Fuel Gas beats 1Q profit forecasts   [Feb-02-17 06:14PM  Associated Press]
▶ National Fuel Reports First Quarter Earnings   [04:30PM  Business Wire]
▶ Tops eyes PHH Mortgage building as new headquarters   [Jan-17-17 12:48PM  at bizjournals.com]
▶ National Fuel Gas Company Teleconference Announcement   [Jan-05-17 12:52PM  Business Wire]
▶ Tom Skains joins board of New York gas company   [Dec-19-16 04:20PM  at bizjournals.com]
▶ The Morning Risk Report: Activists Need not Attempt Proxy Access   [Dec-16-16 07:22AM  at The Wall Street Journal]
▶ National Fuel Declares Quarterly Dividend   [Dec-08-16 12:46PM  Business Wire]
▶ Should You Follow Hedge Funds Into Toro Co (TTC)?   [Nov-30-16 06:32PM  at Insider Monkey]
▶ 3 Cheap Stocks With Shifting Moats   [Nov-09-16 06:00AM  at Morningstar]
▶ National Fuel Gas Company Teleconference Announcement   [Oct-10-16 12:42PM  Business Wire]
▶ National Fuel Declares Quarterly Dividend   [Sep-16-16 12:43PM  Business Wire]
▶ Billionaire Mario Gabellis Favorite Small-Caps Stocks for Q3   [Aug-11-16 02:25PM  at Insider Monkey]
▶ National Fuel Reports Third Quarter Earnings   [05:10PM  Business Wire]
▶ National Fuel Gas Company Teleconference Announcement   [Jul-07-16 09:58AM  Business Wire]
▶ National Fuel Elects New Director for Corporate Board   [Jun-24-16 11:04AM  Business Wire]
▶ 5 Stocks That Could Raise Their Dividends   [Jun-02-16 12:11PM  at Motley Fool]
▶ National Fuel Gas reports 2Q loss   [Apr-28-16 07:48PM  AP]
Stock chart of NFG Financial statements of NFG
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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