Intrinsic value of National Fuel Gas - NFG

Previous Close

$58.21

  Intrinsic Value

$4.43

stock screener

  Rating & Target

str. sell

-92%

  Value-price divergence*

-82%

Previous close

$58.21

 
Intrinsic value

$4.43

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence*

-82%

*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 5.0

 

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
  16.30
  15.17
  14.15
  13.24
  12.41
  11.67
  11.01
  10.40
  9.86
  9.38
  8.94
  8.55
  8.19
  7.87
  7.59
  7.33
  7.09
  6.88
  6.70
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
Revenue, $m
  1,439
  1,689
  1,945
  2,220
  2,514
  2,826
  3,156
  3,503
  3,868
  4,249
  4,648
  5,063
  5,496
  5,946
  6,414
  6,901
  7,406
  7,932
  8,478
  9,046
  9,636
  10,250
  10,889
  11,555
  12,249
  12,971
  13,725
  14,512
  15,333
  16,190
  17,086
Variable operating expenses, $m
 
  2,275
  2,620
  2,990
  3,386
  3,806
  4,250
  4,718
  5,209
  5,723
  6,259
  6,819
  7,401
  8,008
  8,638
  9,293
  9,974
  10,682
  11,417
  12,181
  12,976
  13,803
  14,664
  15,561
  16,495
  17,468
  18,483
  19,542
  20,648
  21,802
  23,008
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
  2,275
  2,620
  2,990
  3,386
  3,806
  4,250
  4,718
  5,209
  5,723
  6,259
  6,819
  7,401
  8,008
  8,638
  9,293
  9,974
  10,682
  11,417
  12,181
  12,976
  13,803
  14,664
  15,561
  16,495
  17,468
  18,483
  19,542
  20,648
  21,802
  23,008
Operating income, $m
  -417
  -586
  -675
  -770
  -872
  -980
  -1,095
  -1,215
  -1,341
  -1,474
  -1,612
  -1,755
  -1,905
  -2,061
  -2,224
  -2,392
  -2,567
  -2,750
  -2,939
  -3,136
  -3,340
  -3,553
  -3,775
  -4,006
  -4,246
  -4,497
  -4,758
  -5,031
  -5,315
  -5,612
  -5,923
EBITDA, $m
  -168
  -297
  -341
  -390
  -441
  -496
  -554
  -615
  -679
  -746
  -816
  -889
  -965
  -1,044
  -1,126
  -1,212
  -1,301
  -1,393
  -1,489
  -1,588
  -1,692
  -1,800
  -1,912
  -2,029
  -2,151
  -2,278
  -2,410
  -2,548
  -2,692
  -2,843
  -3,000
Interest expense (income), $m
  120
  121
  159
  201
  247
  295
  346
  400
  457
  517
  579
  644
  713
  783
  857
  934
  1,014
  1,097
  1,183
  1,272
  1,365
  1,462
  1,563
  1,667
  1,776
  1,890
  2,009
  2,132
  2,261
  2,396
  2,536
Earnings before tax, $m
  -524
  -707
  -834
  -972
  -1,119
  -1,275
  -1,440
  -1,615
  -1,798
  -1,990
  -2,191
  -2,400
  -2,618
  -2,845
  -3,081
  -3,326
  -3,581
  -3,846
  -4,122
  -4,408
  -4,706
  -5,015
  -5,337
  -5,673
  -6,023
  -6,387
  -6,767
  -7,163
  -7,576
  -8,008
  -8,459
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
  -707
  -834
  -972
  -1,119
  -1,275
  -1,440
  -1,615
  -1,798
  -1,990
  -2,191
  -2,400
  -2,618
  -2,845
  -3,081
  -3,326
  -3,581
  -3,846
  -4,122
  -4,408
  -4,706
  -5,015
  -5,337
  -5,673
  -6,023
  -6,387
  -6,767
  -7,163
  -7,576
  -8,008
  -8,459

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
  6,397
  7,367
  8,409
  9,523
  10,705
  11,954
  13,270
  14,651
  16,096
  17,605
  19,179
  20,818
  22,524
  24,297
  26,140
  28,055
  30,045
  32,113
  34,264
  36,500
  38,826
  41,248
  43,769
  46,396
  49,134
  51,989
  54,968
  58,078
  61,325
  64,718
Adjusted assets (=assets-cash), $m
  5,506
  6,397
  7,367
  8,409
  9,523
  10,705
  11,954
  13,270
  14,651
  16,096
  17,605
  19,179
  20,818
  22,524
  24,297
  26,140
  28,055
  30,045
  32,113
  34,264
  36,500
  38,826
  41,248
  43,769
  46,396
  49,134
  51,989
  54,968
  58,078
  61,325
  64,718
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
  5,691
  6,554
  7,482
  8,472
  9,524
  10,636
  11,806
  13,034
  14,320
  15,663
  17,063
  18,522
  20,039
  21,616
  23,256
  24,960
  26,730
  28,571
  30,484
  32,473
  34,543
  36,697
  38,941
  41,278
  43,714
  46,254
  48,904
  51,671
  54,560
  57,578
Working capital, $m
  109
  -24
  -27
  -31
  -35
  -40
  -44
  -49
  -54
  -59
  -65
  -71
  -77
  -83
  -90
  -97
  -104
  -111
  -119
  -127
  -135
  -144
  -152
  -162
  -171
  -182
  -192
  -203
  -215
  -227
  -239
Total debt, $m
  2,086
  2,749
  3,473
  4,250
  5,081
  5,963
  6,895
  7,876
  8,906
  9,985
  11,111
  12,285
  13,507
  14,780
  16,102
  17,477
  18,906
  20,391
  21,934
  23,538
  25,206
  26,942
  28,748
  30,629
  32,588
  34,631
  36,761
  38,983
  41,303
  43,726
  46,257
Total liabilities, $m
  4,109
  4,772
  5,496
  6,273
  7,104
  7,986
  8,918
  9,899
  10,929
  12,008
  13,134
  14,308
  15,530
  16,803
  18,125
  19,500
  20,929
  22,414
  23,957
  25,561
  27,229
  28,965
  30,771
  32,652
  34,611
  36,654
  38,784
  41,006
  43,326
  45,749
  48,280
Total equity, $m
  1,527
  1,625
  1,871
  2,136
  2,419
  2,719
  3,036
  3,371
  3,721
  4,088
  4,472
  4,872
  5,288
  5,721
  6,171
  6,639
  7,126
  7,631
  8,157
  8,703
  9,271
  9,862
  10,477
  11,117
  11,785
  12,480
  13,205
  13,962
  14,752
  15,577
  16,438
Total liabilities and equity, $m
  5,636
  6,397
  7,367
  8,409
  9,523
  10,705
  11,954
  13,270
  14,650
  16,096
  17,606
  19,180
  20,818
  22,524
  24,296
  26,139
  28,055
  30,045
  32,114
  34,264
  36,500
  38,827
  41,248
  43,769
  46,396
  49,134
  51,989
  54,968
  58,078
  61,326
  64,718
Debt-to-equity ratio
  1.366
  1.690
  1.860
  1.990
  2.100
  2.190
  2.270
  2.340
  2.390
  2.440
  2.480
  2.520
  2.550
  2.580
  2.610
  2.630
  2.650
  2.670
  2.690
  2.700
  2.720
  2.730
  2.740
  2.760
  2.770
  2.770
  2.780
  2.790
  2.800
  2.810
  2.810
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
  -707
  -834
  -972
  -1,119
  -1,275
  -1,440
  -1,615
  -1,798
  -1,990
  -2,191
  -2,400
  -2,618
  -2,845
  -3,081
  -3,326
  -3,581
  -3,846
  -4,122
  -4,408
  -4,706
  -5,015
  -5,337
  -5,673
  -6,023
  -6,387
  -6,767
  -7,163
  -7,576
  -8,008
  -8,459
Depreciation, amort., depletion, $m
  249
  289
  333
  380
  431
  484
  540
  600
  662
  727
  796
  866
  940
  1,017
  1,097
  1,181
  1,267
  1,357
  1,450
  1,547
  1,648
  1,753
  1,863
  1,977
  2,095
  2,219
  2,348
  2,482
  2,623
  2,770
  2,923
Funds from operations, $m
  501
  -418
  -501
  -591
  -688
  -791
  -900
  -1,015
  -1,136
  -1,263
  -1,395
  -1,533
  -1,678
  -1,828
  -1,984
  -2,146
  -2,314
  -2,489
  -2,671
  -2,860
  -3,057
  -3,262
  -3,475
  -3,696
  -3,927
  -4,168
  -4,419
  -4,680
  -4,953
  -5,238
  -5,536
Change in working capital, $m
  -88
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
Cash from operations, $m
  589
  -414
  -497
  -587
  -684
  -787
  -895
  -1,010
  -1,131
  -1,257
  -1,390
  -1,528
  -1,672
  -1,821
  -1,977
  -2,139
  -2,307
  -2,482
  -2,664
  -2,853
  -3,049
  -3,253
  -3,466
  -3,687
  -3,917
  -4,158
  -4,408
  -4,669
  -4,942
  -5,226
  -5,524
Maintenance CAPEX, $m
  0
  -248
  -289
  -333
  -380
  -430
  -483
  -540
  -599
  -662
  -727
  -795
  -866
  -940
  -1,017
  -1,097
  -1,181
  -1,267
  -1,357
  -1,450
  -1,547
  -1,648
  -1,753
  -1,863
  -1,977
  -2,095
  -2,219
  -2,348
  -2,482
  -2,623
  -2,770
New CAPEX, $m
  -582
  -797
  -863
  -928
  -990
  -1,052
  -1,112
  -1,170
  -1,228
  -1,286
  -1,343
  -1,400
  -1,458
  -1,517
  -1,578
  -1,640
  -1,704
  -1,771
  -1,840
  -1,913
  -1,990
  -2,070
  -2,154
  -2,243
  -2,337
  -2,436
  -2,540
  -2,650
  -2,767
  -2,889
  -3,018
Cash from investing activities, $m
  -454
  -1,045
  -1,152
  -1,261
  -1,370
  -1,482
  -1,595
  -1,710
  -1,827
  -1,948
  -2,070
  -2,195
  -2,324
  -2,457
  -2,595
  -2,737
  -2,885
  -3,038
  -3,197
  -3,363
  -3,537
  -3,718
  -3,907
  -4,106
  -4,314
  -4,531
  -4,759
  -4,998
  -5,249
  -5,512
  -5,788
Free cash flow, $m
  135
  -1,460
  -1,650
  -1,848
  -2,054
  -2,268
  -2,491
  -2,721
  -2,959
  -3,205
  -3,459
  -3,723
  -3,996
  -4,279
  -4,572
  -4,876
  -5,191
  -5,520
  -5,861
  -6,216
  -6,586
  -6,971
  -7,373
  -7,793
  -8,231
  -8,689
  -9,167
  -9,668
  -10,191
  -10,738
  -11,312
Issuance/(repayment) of debt, $m
  0
  663
  724
  778
  830
  882
  932
  981
  1,030
  1,078
  1,126
  1,174
  1,223
  1,272
  1,323
  1,375
  1,429
  1,485
  1,543
  1,604
  1,668
  1,736
  1,806
  1,881
  1,960
  2,043
  2,130
  2,222
  2,320
  2,423
  2,531
Issuance/(repurchase) of shares, $m
  14
  935
  1,081
  1,236
  1,401
  1,575
  1,758
  1,949
  2,149
  2,357
  2,574
  2,799
  3,034
  3,278
  3,531
  3,794
  4,068
  4,352
  4,647
  4,954
  5,274
  5,606
  5,953
  6,313
  6,690
  7,082
  7,492
  7,919
  8,366
  8,833
  9,321
Cash from financing (excl. dividends), $m  
  16
  1,598
  1,805
  2,014
  2,231
  2,457
  2,690
  2,930
  3,179
  3,435
  3,700
  3,973
  4,257
  4,550
  4,854
  5,169
  5,497
  5,837
  6,190
  6,558
  6,942
  7,342
  7,759
  8,194
  8,650
  9,125
  9,622
  10,141
  10,686
  11,256
  11,852
Total cash flow (excl. dividends), $m
  151
  137
  155
  166
  178
  189
  199
  210
  220
  231
  241
  251
  261
  271
  282
  293
  305
  317
  329
  342
  356
  370
  385
  401
  418
  436
  454
  474
  495
  517
  540
Retained Cash Flow (-), $m
  498
  -935
  -1,081
  -1,236
  -1,401
  -1,575
  -1,758
  -1,949
  -2,149
  -2,357
  -2,574
  -2,799
  -3,034
  -3,278
  -3,531
  -3,794
  -4,068
  -4,352
  -4,647
  -4,954
  -5,274
  -5,606
  -5,953
  -6,313
  -6,690
  -7,082
  -7,492
  -7,919
  -8,366
  -8,833
  -9,321
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
 
  -667
  -926
  -1,070
  -1,224
  -1,386
  -1,558
  -1,739
  -1,929
  -2,127
  -2,333
  -2,549
  -2,773
  -3,006
  -3,249
  -3,501
  -3,763
  -4,035
  -4,318
  -4,612
  -4,918
  -5,236
  -5,567
  -5,912
  -6,272
  -6,646
  -7,037
  -7,445
  -7,871
  -8,316
  -8,781
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
 
  -622
  -800
  -851
  -888
  -911
  -920
  -913
  -891
  -856
  -809
  -753
  -688
  -619
  -547
  -474
  -404
  -337
  -276
  -221
  -174
  -133
  -100
  -73
  -52
  -36
  -24
  -16
  -10
  -6
  -4
Current shareholders' claim on cash, %
  100
  83.0
  69.0
  57.4
  47.9
  39.9
  33.3
  27.9
  23.3
  19.6
  16.4
  13.8
  11.6
  9.7
  8.2
  6.9
  5.8
  4.9
  4.1
  3.5
  2.9
  2.5
  2.1
  1.8
  1.5
  1.3
  1.1
  0.9
  0.8
  0.6
  0.5

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 -17
Price to Sales 3.4
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 8.4
Price to Free Cash Flow 707.8
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 16.3% 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 85.927 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 $5.0 billion.

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COMPANY NEWS

▶ National Fuel Gas Company Teleconference Announcement   [Jul-06-17 04:42PM  Business Wire]
▶ National Fuel Gas beats 2Q profit forecasts   [May-05-17 05:03AM  Associated Press]
▶ National Fuel Reports Second Quarter Earnings   [May-04-17 05:05PM  Business Wire]
▶ 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]
Stock chart of NFG Financial statements of NFG Annual reports 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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