Intrinsic value of ONEOK Partners - OKS

Previous Close

$51.07

  Intrinsic Value

$237.81

stock screener

  Rating & Target

str. buy

+366%

  Value-price divergence*

-112%

Previous close

$51.07

 
Intrinsic value

$237.81

 
Up/down potential

+366%

 
Rating

str. buy

 
Value-price divergence*

-112%

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

We calculate the intrinsic value of OKS 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 14.8

 

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, %
  14.91
  55.00
  50.00
  45.50
  41.45
  37.81
  34.52
  31.57
  28.91
  26.52
  24.37
  22.43
  20.69
  19.12
  17.71
  16.44
  15.29
  14.27
  13.34
  12.50
  11.75
  11.08
  10.47
  9.92
  9.43
  8.99
  8.59
  8.23
  7.91
  7.62
  7.36
Revenue, $m
  8,918
  13,823
  20,734
  30,168
  42,673
  58,806
  79,108
  104,085
  134,180
  169,770
  211,144
  258,512
  312,000
  371,659
  437,477
  509,391
  587,300
  671,079
  760,592
  855,702
  956,283
  1,062,228
  1,173,453
  1,289,905
  1,411,562
  1,538,438
  1,670,582
  1,808,080
  1,951,054
  2,099,660
  2,254,092
Variable operating expenses, $m
 
  7,838
  11,733
  17,049
  24,096
  33,187
  44,628
  58,702
  75,662
  95,717
  119,032
  145,676
  175,817
  209,436
  246,526
  287,050
  330,953
  378,164
  428,606
  482,202
  538,881
  598,583
  661,261
  726,883
  795,439
  866,935
  941,401
  1,018,883
  1,099,451
  1,183,194
  1,270,218
Fixed operating expenses, $m
 
  2,658
  2,724
  2,792
  2,862
  2,934
  3,007
  3,082
  3,159
  3,238
  3,319
  3,402
  3,487
  3,574
  3,664
  3,755
  3,849
  3,946
  4,044
  4,145
  4,249
  4,355
  4,464
  4,576
  4,690
  4,807
  4,927
  5,051
  5,177
  5,306
  5,439
Total operating expenses, $m
  7,602
  10,496
  14,457
  19,841
  26,958
  36,121
  47,635
  61,784
  78,821
  98,955
  122,351
  149,078
  179,304
  213,010
  250,190
  290,805
  334,802
  382,110
  432,650
  486,347
  543,130
  602,938
  665,725
  731,459
  800,129
  871,742
  946,328
  1,023,934
  1,104,628
  1,188,500
  1,275,657
Operating income, $m
  1,316
  3,327
  6,277
  10,327
  15,715
  22,685
  31,474
  42,300
  55,359
  70,814
  88,793
  109,434
  132,695
  158,648
  187,288
  218,585
  252,497
  288,969
  327,941
  369,354
  413,153
  459,290
  507,729
  558,446
  611,433
  666,695
  724,254
  784,146
  846,425
  911,160
  978,434
EBITDA, $m
  1,705
  4,031
  7,309
  11,807
  17,788
  25,523
  35,275
  47,286
  61,773
  78,916
  98,857
  121,696
  147,495
  176,277
  208,039
  242,747
  280,355
  320,801
  364,019
  409,943
  458,512
  509,675
  563,390
  619,631
  678,388
  739,668
  803,495
  869,909
  938,970
  1,010,754
  1,085,353
Interest expense (income), $m
  362
  375
  624
  975
  1,455
  2,090
  2,910
  3,942
  5,212
  6,741
  8,550
  10,653
  13,061
  15,780
  18,812
  22,158
  25,813
  29,773
  34,031
  38,581
  43,415
  48,528
  53,913
  59,566
  65,485
  71,669
  78,118
  84,834
  91,823
  99,090
  106,644
Earnings before tax, $m
  1,086
  2,952
  5,653
  9,352
  14,260
  20,595
  28,563
  38,358
  50,148
  64,073
  80,242
  98,781
  119,634
  142,869
  168,475
  196,428
  226,685
  259,196
  293,910
  330,773
  369,737
  410,762
  453,816
  498,880
  545,948
  595,026
  646,136
  699,312
  754,602
  812,070
  871,791
Tax expense, $m
  14
  797
  1,526
  2,525
  3,850
  5,561
  7,712
  10,357
  13,540
  17,300
  21,665
  26,671
  32,301
  38,575
  45,488
  53,035
  61,205
  69,983
  79,356
  89,309
  99,829
  110,906
  122,530
  134,698
  147,406
  160,657
  174,457
  188,814
  203,743
  219,259
  235,383
Net income, $m
  1,067
  2,155
  4,127
  6,827
  10,410
  15,034
  20,851
  28,001
  36,608
  46,773
  58,577
  72,110
  87,333
  104,294
  122,987
  143,392
  165,480
  189,213
  214,554
  241,464
  269,908
  299,856
  331,286
  364,183
  398,542
  434,369
  471,679
  510,498
  550,860
  592,811
  636,407

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  15,469
  23,956
  35,935
  52,285
  73,957
  101,917
  137,103
  180,389
  232,548
  294,228
  365,935
  448,028
  540,727
  644,122
  758,192
  882,827
  1,017,851
  1,163,049
  1,318,183
  1,483,018
  1,657,336
  1,840,950
  2,033,715
  2,235,538
  2,446,382
  2,666,270
  2,895,289
  3,133,587
  3,381,375
  3,638,926
  3,906,571
Adjusted assets (=assets-cash), $m
  15,469
  23,956
  35,935
  52,285
  73,957
  101,917
  137,103
  180,389
  232,548
  294,228
  365,935
  448,028
  540,727
  644,122
  758,192
  882,827
  1,017,851
  1,163,049
  1,318,183
  1,483,018
  1,657,336
  1,840,950
  2,033,715
  2,235,538
  2,446,382
  2,666,270
  2,895,289
  3,133,587
  3,381,375
  3,638,926
  3,906,571
Revenue / Adjusted assets
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
  0.577
Average production assets, $m
  12,690
  19,670
  29,505
  42,930
  60,724
  83,681
  112,571
  148,112
  190,939
  241,582
  300,458
  367,863
  443,976
  528,870
  622,530
  724,864
  835,728
  954,946
  1,082,322
  1,217,663
  1,360,791
  1,511,550
  1,669,824
  1,835,535
  2,008,653
  2,189,197
  2,377,238
  2,572,898
  2,776,349
  2,987,816
  3,207,572
Working capital, $m
  -1,650
  -207
  -311
  -453
  -640
  -882
  -1,187
  -1,561
  -2,013
  -2,547
  -3,167
  -3,878
  -4,680
  -5,575
  -6,562
  -7,641
  -8,810
  -10,066
  -11,409
  -12,836
  -14,344
  -15,933
  -17,602
  -19,349
  -21,173
  -23,077
  -25,059
  -27,121
  -29,266
  -31,495
  -33,811
Total debt, $m
  7,809
  12,997
  20,316
  30,306
  43,548
  60,631
  82,130
  108,578
  140,447
  178,133
  221,946
  272,105
  328,744
  391,919
  461,615
  537,767
  620,267
  708,983
  803,770
  904,484
  1,010,992
  1,123,180
  1,240,960
  1,364,273
  1,493,099
  1,627,451
  1,767,382
  1,912,982
  2,064,380
  2,221,744
  2,385,275
Total liabilities, $m
  9,450
  14,637
  21,956
  31,946
  45,188
  62,271
  83,770
  110,218
  142,087
  179,773
  223,586
  273,745
  330,384
  393,559
  463,255
  539,407
  621,907
  710,623
  805,410
  906,124
  1,012,632
  1,124,820
  1,242,600
  1,365,913
  1,494,739
  1,629,091
  1,769,022
  1,914,622
  2,066,020
  2,223,384
  2,386,915
Total equity, $m
  6,020
  9,319
  13,979
  20,339
  28,769
  39,646
  53,333
  70,171
  90,461
  114,455
  142,349
  174,283
  210,343
  250,564
  294,937
  343,420
  395,944
  452,426
  512,773
  576,894
  644,704
  716,129
  791,115
  869,624
  951,642
  1,037,179
  1,126,268
  1,218,965
  1,315,355
  1,415,542
  1,519,656
Total liabilities and equity, $m
  15,470
  23,956
  35,935
  52,285
  73,957
  101,917
  137,103
  180,389
  232,548
  294,228
  365,935
  448,028
  540,727
  644,123
  758,192
  882,827
  1,017,851
  1,163,049
  1,318,183
  1,483,018
  1,657,336
  1,840,949
  2,033,715
  2,235,537
  2,446,381
  2,666,270
  2,895,290
  3,133,587
  3,381,375
  3,638,926
  3,906,571
Debt-to-equity ratio
  1.297
  1.390
  1.450
  1.490
  1.510
  1.530
  1.540
  1.550
  1.550
  1.560
  1.560
  1.560
  1.560
  1.560
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
  1.570
Adjusted equity ratio
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389
  0.389

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,067
  2,155
  4,127
  6,827
  10,410
  15,034
  20,851
  28,001
  36,608
  46,773
  58,577
  72,110
  87,333
  104,294
  122,987
  143,392
  165,480
  189,213
  214,554
  241,464
  269,908
  299,856
  331,286
  364,183
  398,542
  434,369
  471,679
  510,498
  550,860
  592,811
  636,407
Depreciation, amort., depletion, $m
  389
  705
  1,032
  1,480
  2,073
  2,838
  3,801
  4,986
  6,414
  8,102
  10,064
  12,262
  14,799
  17,629
  20,751
  24,162
  27,858
  31,832
  36,077
  40,589
  45,360
  50,385
  55,661
  61,185
  66,955
  72,973
  79,241
  85,763
  92,545
  99,594
  106,919
Funds from operations, $m
  1,506
  2,859
  5,159
  8,307
  12,483
  17,873
  24,652
  32,987
  43,021
  54,875
  68,641
  84,372
  102,132
  121,923
  143,738
  167,554
  193,337
  221,045
  250,632
  282,053
  315,268
  350,241
  386,947
  425,367
  465,497
  507,343
  550,921
  596,261
  643,405
  692,405
  743,326
Change in working capital, $m
  19
  -74
  -104
  -142
  -188
  -242
  -305
  -375
  -451
  -534
  -621
  -711
  -802
  -895
  -987
  -1,079
  -1,169
  -1,257
  -1,343
  -1,427
  -1,509
  -1,589
  -1,668
  -1,747
  -1,825
  -1,903
  -1,982
  -2,062
  -2,145
  -2,229
  -2,316
Cash from operations, $m
  1,487
  2,933
  5,263
  8,448
  12,671
  18,115
  24,957
  33,362
  43,473
  55,409
  69,262
  85,082
  102,935
  122,818
  144,725
  168,633
  194,506
  222,302
  251,975
  283,480
  316,777
  351,830
  388,615
  427,114
  467,322
  509,246
  552,903
  598,323
  645,549
  694,634
  745,643
Maintenance CAPEX, $m
  0
  -423
  -656
  -983
  -1,431
  -2,024
  -2,789
  -3,752
  -4,937
  -6,365
  -8,053
  -10,015
  -12,262
  -14,799
  -17,629
  -20,751
  -24,162
  -27,858
  -31,832
  -36,077
  -40,589
  -45,360
  -50,385
  -55,661
  -61,185
  -66,955
  -72,973
  -79,241
  -85,763
  -92,545
  -99,594
New CAPEX, $m
  -622
  -6,980
  -9,835
  -13,425
  -17,794
  -22,957
  -28,890
  -35,541
  -42,826
  -50,643
  -58,876
  -67,405
  -76,113
  -84,895
  -93,659
  -102,334
  -110,865
  -119,217
  -127,376
  -135,341
  -143,127
  -150,760
  -158,274
  -165,711
  -173,118
  -180,544
  -188,041
  -195,660
  -203,452
  -211,467
  -219,756
Cash from investing activities, $m
  -613
  -7,403
  -10,491
  -14,408
  -19,225
  -24,981
  -31,679
  -39,293
  -47,763
  -57,008
  -66,929
  -77,420
  -88,375
  -99,694
  -111,288
  -123,085
  -135,027
  -147,075
  -159,208
  -171,418
  -183,716
  -196,120
  -208,659
  -221,372
  -234,303
  -247,499
  -261,014
  -274,901
  -289,215
  -304,012
  -319,350
Free cash flow, $m
  874
  -4,470
  -5,228
  -5,960
  -6,555
  -6,866
  -6,723
  -5,932
  -4,291
  -1,599
  2,333
  7,663
  14,560
  23,124
  33,437
  45,548
  59,479
  75,227
  92,767
  112,061
  133,061
  155,711
  179,956
  205,742
  233,020
  261,746
  291,889
  323,422
  356,334
  390,622
  426,293
Issuance/(repayment) of debt, $m
  456
  5,188
  7,319
  9,990
  13,242
  17,083
  21,499
  26,448
  31,869
  37,686
  43,813
  50,159
  56,639
  63,174
  69,697
  76,152
  82,500
  88,716
  94,787
  100,714
  106,508
  112,188
  117,779
  123,314
  128,826
  134,352
  139,931
  145,600
  151,398
  157,363
  163,531
Issuance/(repurchase) of shares, $m
  0
  1,144
  533
  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 from financing (excl. dividends), $m  
  453
  6,332
  7,852
  9,990
  13,242
  17,083
  21,499
  26,448
  31,869
  37,686
  43,813
  50,159
  56,639
  63,174
  69,697
  76,152
  82,500
  88,716
  94,787
  100,714
  106,508
  112,188
  117,779
  123,314
  128,826
  134,352
  139,931
  145,600
  151,398
  157,363
  163,531
Total cash flow (excl. dividends), $m
  1,327
  1,863
  2,624
  4,030
  6,687
  10,217
  14,776
  20,516
  27,578
  36,087
  46,146
  57,822
  71,199
  86,298
  103,134
  121,700
  141,979
  163,942
  187,554
  212,775
  239,569
  267,899
  297,736
  329,056
  361,845
  396,098
  431,819
  469,022
  507,733
  547,985
  589,824
Retained Cash Flow (-), $m
  313
  -3,299
  -4,660
  -6,360
  -8,430
  -10,876
  -13,687
  -16,838
  -20,290
  -23,993
  -27,894
  -31,934
  -36,060
  -40,221
  -44,373
  -48,483
  -52,525
  -56,482
  -60,347
  -64,121
  -67,810
  -71,426
  -74,986
  -78,509
  -82,018
  -85,537
  -89,088
  -92,698
  -96,390
  -100,187
  -104,114
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -1,436
  -2,036
  -2,330
  -1,743
  -659
  1,089
  3,678
  7,289
  12,094
  18,252
  25,887
  35,139
  46,078
  58,760
  73,217
  89,455
  107,460
  127,207
  148,654
  171,759
  196,473
  222,750
  250,547
  279,827
  310,562
  342,731
  376,325
  411,343
  447,798
  485,710
Discount rate, %
 
  8.60
  9.03
  9.48
  9.96
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.42
  27.74
  29.12
  30.58
  32.11
  33.71
  35.40
PV of cash for distribution, $m
 
  -1,323
  -1,713
  -1,776
  -1,193
  -401
  583
  1,714
  2,923
  4,121
  5,217
  6,120
  6,771
  7,123
  7,167
  6,923
  6,436
  5,769
  4,990
  4,168
  3,364
  2,623
  1,976
  1,437
  1,009
  683
  446
  280
  169
  98
  55
Current shareholders' claim on cash, %
  100
  92.8
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7
  90.7

ONEOK Partners, L.P. engages in the gathering, processing, storage, and transportation of natural gas in the United States. It operates through three segments: Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines. The Natural Gas Gathering and Processing segment gathers and processes natural gas produced from crude oil and natural gas wells located in the Mid-Continent region; and gathers and processes natural gas in the Williston Basin, which spans portions of Montana and North Dakota, and the Powder River Basin of Wyoming. The Natural Gas Liquids segment gathers, treats, fractionates, and transports natural gas liquids (NGLs), as well as stores, markets, and distributes NGL products primarily in Oklahoma, Kansas, Texas, New Mexico, and the Rocky Mountain region. This segment also owns the Federal Energy Regulatory Commission (FERC)-regulated NGLs gathering and distribution pipelines in Oklahoma, Kansas, Texas, New Mexico, Montana, North Dakota, Wyoming, and Colorado; terminal and storage facilities in Missouri, Nebraska, Iowa, and Illinois; and FERC-regulated NGLs distribution and refined petroleum product pipelines in Kansas, Missouri, Nebraska, Iowa, Illinois, and Indiana. The Natural Gas Pipelines segment owns and operates regulated natural gas transmission pipelines and natural gas storage facilities; and provides natural gas transportation and storage services. This segmentÂ’s interstate natural gas pipeline assets transport natural gas through FERC-regulated interstate natural gas pipelines in North Dakota, Minnesota, Wisconsin, Illinois, Indiana, Kentucky, Tennessee, Oklahoma, Texas, and New Mexico. It also transports intrastate natural gas through its assets in Oklahoma; and owns underground natural gas storage facilities in Oklahoma, Texas, and Kansas. ONEOK Partners GP, L.L.C. serves as the general partner of ONEOK Partners, L.P. The company was founded in 1993 and is headquartered in Tulsa, Oklahoma.

FINANCIAL RATIOS  of  ONEOK Partners (OKS)

Valuation Ratios
P/E Ratio 13.7
Price to Sales 1.6
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow 16.9
Growth Rates
Sales Growth Rate 14.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -47.6%
Cap. Spend. - 3 Yr. Gr. Rate -20.3%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 104.5%
Total Debt to Equity 129.7%
Interest Coverage 4
Management Effectiveness
Return On Assets 9.4%
Ret/ On Assets - 3 Yr. Avg. 8%
Return On Total Capital 7.8%
Ret/ On T. Cap. - 3 Yr. Avg. 6.6%
Return On Equity 17.3%
Return On Equity - 3 Yr. Avg. 14.5%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 27.2%
Gross Margin - 3 Yr. Avg. 23.9%
EBITDA Margin 20.6%
EBITDA Margin - 3 Yr. Avg. 16.3%
Operating Margin 14.8%
Oper. Margin - 3 Yr. Avg. 11.6%
Pre-Tax Margin 12.2%
Pre-Tax Margin - 3 Yr. Avg. 9.2%
Net Profit Margin 12%
Net Profit Margin - 3 Yr. Avg. 9%
Effective Tax Rate 1.3%
Eff/ Tax Rate - 3 Yr. Avg. 1.1%
Payout Ratio 124.8%

OKS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OKS stock intrinsic value calculation we used $8918 million for the last fiscal year's total revenue generated by ONEOK Partners. The default revenue input number comes from 2016 income statement of ONEOK Partners. 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 OKS stock valuation model: a) initial revenue growth rate of 55% 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 8.6%, whose default value for OKS is calculated based on our internal credit rating of ONEOK Partners, 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 ONEOK Partners.
    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 OKS stock the variable cost ratio is equal to 56.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2593 million in the base year in the intrinsic value calculation for OKS 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 4.8% for ONEOK Partners.

Corporate tax rate of 27% is the nominal tax rate for ONEOK Partners. 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 OKS 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 OKS are equal to 142.3%.

Life of production assets of 33.9 years is the average useful life of capital assets used in ONEOK Partners 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 OKS is equal to -1.5%. 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 - $6020 million for ONEOK Partners - 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 289.013 million for ONEOK Partners 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 ONEOK Partners at the current share price and the inputted number of shares is $14.8 billion.

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Stock chart of OKS Financial statements of OKS
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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