Intrinsic value of Pacific Drilling - PACD

Previous Close

$1.59

  Intrinsic Value

$33.01

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+55%

Previous close

$1.59

 
Intrinsic value

$33.01

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+55%

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

We calculate the intrinsic value of PACD 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 0.0

 

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, %
  -29.12
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  769
  784
  802
  823
  846
  872
  900
  931
  964
  1,000
  1,038
  1,079
  1,123
  1,169
  1,219
  1,272
  1,327
  1,386
  1,449
  1,515
  1,584
  1,658
  1,735
  1,817
  1,903
  1,993
  2,089
  2,189
  2,295
  2,406
  2,523
Variable operating expenses, $m
 
  439
  449
  461
  474
  488
  504
  521
  540
  560
  581
  604
  629
  655
  683
  712
  743
  776
  811
  848
  887
  928
  972
  1,017
  1,065
  1,116
  1,170
  1,226
  1,285
  1,347
  1,413
Fixed operating expenses, $m
 
  170
  174
  179
  183
  188
  193
  197
  202
  207
  212
  218
  223
  229
  235
  240
  246
  253
  259
  265
  272
  279
  286
  293
  300
  308
  315
  323
  331
  340
  348
Total operating expenses, $m
  593
  609
  623
  640
  657
  676
  697
  718
  742
  767
  793
  822
  852
  884
  918
  952
  989
  1,029
  1,070
  1,113
  1,159
  1,207
  1,258
  1,310
  1,365
  1,424
  1,485
  1,549
  1,616
  1,687
  1,761
Operating income, $m
  176
  175
  179
  183
  189
  196
  203
  212
  222
  233
  244
  257
  271
  286
  302
  319
  338
  357
  378
  401
  425
  451
  478
  506
  537
  569
  604
  640
  678
  719
  762
EBITDA, $m
  452
  457
  467
  479
  493
  509
  527
  546
  568
  592
  617
  644
  674
  706
  740
  776
  814
  855
  899
  945
  994
  1,046
  1,101
  1,159
  1,220
  1,285
  1,354
  1,426
  1,502
  1,583
  1,668
Interest expense (income), $m
  170
  151
  154
  158
  162
  167
  173
  179
  185
  192
  200
  208
  216
  226
  235
  246
  257
  269
  281
  294
  308
  323
  338
  354
  371
  390
  409
  429
  450
  472
  495
Earnings before tax, $m
  -15
  24
  24
  25
  27
  28
  31
  34
  37
  40
  45
  49
  54
  60
  66
  73
  81
  89
  98
  107
  117
  128
  140
  152
  165
  180
  195
  211
  228
  247
  266
Tax expense, $m
  22
  6
  7
  7
  7
  8
  8
  9
  10
  11
  12
  13
  15
  16
  18
  20
  22
  24
  26
  29
  32
  35
  38
  41
  45
  49
  53
  57
  62
  67
  72
Net income, $m
  -37
  18
  18
  18
  19
  21
  22
  24
  27
  30
  33
  36
  40
  44
  49
  54
  59
  65
  71
  78
  85
  93
  102
  111
  121
  131
  142
  154
  167
  180
  194

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  586
  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
  5,998
  5,524
  5,651
  5,796
  5,959
  6,140
  6,338
  6,554
  6,788
  7,039
  7,309
  7,598
  7,907
  8,235
  8,584
  8,954
  9,347
  9,762
  10,201
  10,666
  11,156
  11,673
  12,218
  12,793
  13,398
  14,036
  14,708
  15,415
  16,159
  16,941
  17,764
Adjusted assets (=assets-cash), $m
  5,412
  5,524
  5,651
  5,796
  5,959
  6,140
  6,338
  6,554
  6,788
  7,039
  7,309
  7,598
  7,907
  8,235
  8,584
  8,954
  9,347
  9,762
  10,201
  10,666
  11,156
  11,673
  12,218
  12,793
  13,398
  14,036
  14,708
  15,415
  16,159
  16,941
  17,764
Revenue / Adjusted assets
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
  0.142
Average production assets, $m
  5,027
  5,127
  5,245
  5,380
  5,532
  5,699
  5,883
  6,084
  6,301
  6,534
  6,785
  7,053
  7,339
  7,644
  7,968
  8,312
  8,676
  9,062
  9,470
  9,900
  10,355
  10,835
  11,341
  11,875
  12,437
  13,029
  13,653
  14,309
  14,999
  15,726
  16,490
Working capital, $m
  221
  135
  138
  142
  146
  150
  155
  160
  166
  172
  179
  186
  193
  201
  210
  219
  228
  238
  249
  260
  272
  285
  298
  312
  327
  343
  359
  376
  395
  414
  434
Total debt, $m
  3,145
  2,707
  2,774
  2,850
  2,936
  3,030
  3,134
  3,247
  3,370
  3,502
  3,643
  3,795
  3,956
  4,128
  4,311
  4,505
  4,711
  4,928
  5,159
  5,402
  5,659
  5,930
  6,215
  6,516
  6,834
  7,168
  7,520
  7,890
  8,280
  8,690
  9,122
Total liabilities, $m
  3,332
  2,894
  2,961
  3,037
  3,123
  3,217
  3,321
  3,434
  3,557
  3,689
  3,830
  3,982
  4,143
  4,315
  4,498
  4,692
  4,898
  5,115
  5,346
  5,589
  5,846
  6,117
  6,402
  6,703
  7,021
  7,355
  7,707
  8,077
  8,467
  8,877
  9,309
Total equity, $m
  2,666
  2,629
  2,690
  2,759
  2,837
  2,923
  3,017
  3,120
  3,231
  3,351
  3,479
  3,617
  3,764
  3,920
  4,086
  4,262
  4,449
  4,647
  4,856
  5,077
  5,310
  5,556
  5,816
  6,089
  6,378
  6,681
  7,001
  7,337
  7,692
  8,064
  8,456
Total liabilities and equity, $m
  5,998
  5,523
  5,651
  5,796
  5,960
  6,140
  6,338
  6,554
  6,788
  7,040
  7,309
  7,599
  7,907
  8,235
  8,584
  8,954
  9,347
  9,762
  10,202
  10,666
  11,156
  11,673
  12,218
  12,792
  13,399
  14,036
  14,708
  15,414
  16,159
  16,941
  17,765
Debt-to-equity ratio
  1.180
  1.030
  1.030
  1.030
  1.030
  1.040
  1.040
  1.040
  1.040
  1.050
  1.050
  1.050
  1.050
  1.050
  1.060
  1.060
  1.060
  1.060
  1.060
  1.060
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.070
  1.080
  1.080
  1.080
  1.080
Adjusted equity ratio
  0.384
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -37
  18
  18
  18
  19
  21
  22
  24
  27
  30
  33
  36
  40
  44
  49
  54
  59
  65
  71
  78
  85
  93
  102
  111
  121
  131
  142
  154
  167
  180
  194
Depreciation, amort., depletion, $m
  276
  282
  288
  296
  304
  313
  323
  334
  346
  359
  373
  388
  403
  420
  438
  457
  477
  498
  520
  544
  569
  595
  623
  652
  683
  716
  750
  786
  824
  864
  906
Funds from operations, $m
  306
  299
  306
  314
  323
  334
  346
  359
  373
  389
  405
  424
  443
  464
  486
  510
  536
  563
  592
  622
  654
  689
  725
  764
  804
  847
  892
  940
  991
  1,044
  1,100
Change in working capital, $m
  57
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
Cash from operations, $m
  249
  297
  303
  311
  319
  330
  341
  353
  367
  382
  399
  416
  436
  456
  478
  501
  526
  553
  581
  611
  642
  676
  712
  749
  789
  832
  876
  923
  973
  1,025
  1,080
Maintenance CAPEX, $m
  0
  -276
  -282
  -288
  -296
  -304
  -313
  -323
  -334
  -346
  -359
  -373
  -388
  -403
  -420
  -438
  -457
  -477
  -498
  -520
  -544
  -569
  -595
  -623
  -652
  -683
  -716
  -750
  -786
  -824
  -864
New CAPEX, $m
  -53
  -100
  -118
  -135
  -151
  -168
  -184
  -200
  -217
  -234
  -251
  -268
  -286
  -305
  -324
  -344
  -364
  -386
  -408
  -431
  -455
  -480
  -506
  -534
  -562
  -592
  -623
  -656
  -690
  -726
  -764
Cash from investing activities, $m
  -53
  -376
  -400
  -423
  -447
  -472
  -497
  -523
  -551
  -580
  -610
  -641
  -674
  -708
  -744
  -782
  -821
  -863
  -906
  -951
  -999
  -1,049
  -1,101
  -1,157
  -1,214
  -1,275
  -1,339
  -1,406
  -1,476
  -1,550
  -1,628
Free cash flow, $m
  196
  -80
  -97
  -113
  -128
  -142
  -156
  -170
  -184
  -197
  -211
  -225
  -238
  -252
  -266
  -280
  -295
  -310
  -325
  -340
  -356
  -373
  -390
  -407
  -425
  -444
  -463
  -483
  -504
  -525
  -548
Issuance/(repayment) of debt, $m
  339
  59
  67
  76
  85
  95
  104
  113
  122
  132
  142
  151
  162
  172
  183
  194
  206
  218
  230
  243
  257
  271
  286
  301
  317
  334
  352
  370
  390
  410
  431
Issuance/(repurchase) of shares, $m
  0
  35
  43
  51
  58
  65
  72
  78
  84
  90
  96
  102
  107
  112
  118
  123
  128
  133
  138
  143
  148
  153
  158
  163
  167
  172
  177
  182
  187
  192
  197
Cash from financing (excl. dividends), $m  
  314
  94
  110
  127
  143
  160
  176
  191
  206
  222
  238
  253
  269
  284
  301
  317
  334
  351
  368
  386
  405
  424
  444
  464
  484
  506
  529
  552
  577
  602
  628
Total cash flow (excl. dividends), $m
  510
  14
  12
  14
  16
  18
  19
  21
  23
  25
  27
  28
  30
  32
  34
  36
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
  66
  70
  73
  77
  81
Retained Cash Flow (-), $m
  26
  -52
  -60
  -69
  -78
  -86
  -94
  -103
  -111
  -120
  -129
  -138
  -147
  -156
  -166
  -176
  -187
  -198
  -209
  -221
  -233
  -246
  -260
  -274
  -288
  -304
  -320
  -336
  -354
  -372
  -392
Prev. year cash balance distribution, $m
 
  89
  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
 
  51
  -48
  -55
  -62
  -68
  -75
  -82
  -88
  -95
  -102
  -109
  -116
  -124
  -132
  -140
  -148
  -157
  -166
  -175
  -185
  -195
  -206
  -217
  -229
  -241
  -254
  -267
  -281
  -296
  -311
Discount rate, %
 
  8.50
  8.93
  9.37
  9.84
  10.33
  10.85
  11.39
  11.96
  12.56
  13.19
  13.85
  14.54
  15.26
  16.03
  16.83
  17.67
  18.55
  19.48
  20.46
  21.48
  22.55
  23.68
  24.86
  26.11
  27.41
  28.78
  30.22
  31.73
  33.32
  34.99
PV of cash for distribution, $m
 
  47
  -40
  -42
  -42
  -42
  -40
  -38
  -36
  -33
  -30
  -26
  -23
  -20
  -16
  -14
  -11
  -9
  -7
  -5
  -4
  -3
  -2
  -1
  -1
  -1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.1
  95.9
  93.4
  90.6
  87.8
  84.8
  81.7
  78.7
  75.7
  72.7
  69.8
  67.0
  64.2
  61.6
  59.1
  56.6
  54.3
  52.1
  50.0
  48.0
  46.1
  44.3
  42.6
  41.0
  39.5
  38.0
  36.7
  35.4
  34.2
  33.0

Pacific Drilling S.A., together with its subsidiaries, operates as an offshore drilling contractor. It provides offshore drilling services to the oil and natural gas industry. The company contracts drilling rigs, related equipment, and work crews primarily on a dayrate basis to drill wells for its customers. As of December 31, 2015, the company had a fleet of seven drillships. Pacific Drilling S.A. was founded in 2006 and is headquartered in Houston, Texas. Pacific Drilling S.A. operates as a subsidiary of Quantum Pacific International Limited.

FINANCIAL RATIOS  of  Pacific Drilling (PACD)

Valuation Ratios
P/E Ratio -0.9
Price to Sales 0
Price to Book 0
Price to Tangible Book
Price to Cash Flow 0.1
Price to Free Cash Flow 0.2
Growth Rates
Sales Growth Rate -29.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -70.7%
Cap. Spend. - 3 Yr. Gr. Rate -42.9%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 99.3%
Total Debt to Equity 118%
Interest Coverage 1
Management Effectiveness
Return On Assets 6.5%
Ret/ On Assets - 3 Yr. Avg. 5.4%
Return On Total Capital -0.7%
Ret/ On T. Cap. - 3 Yr. Avg. 1.7%
Return On Equity -1.4%
Return On Equity - 3 Yr. Avg. 3.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 100%
Gross Margin - 3 Yr. Avg. 99.8%
EBITDA Margin 56%
EBITDA Margin - 3 Yr. Avg. 53.4%
Operating Margin 22.9%
Oper. Margin - 3 Yr. Avg. 28.6%
Pre-Tax Margin -2%
Pre-Tax Margin - 3 Yr. Avg. 11.3%
Net Profit Margin -4.8%
Net Profit Margin - 3 Yr. Avg. 8%
Effective Tax Rate -146.7%
Eff/ Tax Rate - 3 Yr. Avg. -36.1%
Payout Ratio 0%

PACD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PACD stock intrinsic value calculation we used $769 million for the last fiscal year's total revenue generated by Pacific Drilling. The default revenue input number comes from 2016 income statement of Pacific Drilling. 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 PACD stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.5%, whose default value for PACD is calculated based on our internal credit rating of Pacific Drilling, 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 Pacific Drilling.
    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 PACD stock the variable cost ratio is equal to 56%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $166 million in the base year in the intrinsic value calculation for PACD 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 5.7% for Pacific Drilling.

Corporate tax rate of 27% is the nominal tax rate for Pacific Drilling. 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 PACD 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 PACD are equal to 653.7%.

Life of production assets of 18.2 years is the average useful life of capital assets used in Pacific Drilling 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 PACD is equal to 17.2%. 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 - $2666 million for Pacific Drilling - 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 20.193 million for Pacific Drilling 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 Pacific Drilling at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ Pacific Drilling Announces Early Consent Deadline Results   [Jul-20-17 09:00AM  Business Wire]
▶ Pacific Drilling reports 1Q loss   [May-05-17 05:03AM  Associated Press]
▶ Pacific Drilling Announces First-Quarter 2017 Results   [May-04-17 11:39PM  Business Wire]
▶ Spending Cuts Will Impact Seadrill and Ocean Rig in 2017   [Mar-24-17 10:36AM  Market Realist]
▶ Pacific Drillings Shrinking Backlog   [Mar-01-17 10:37AM  Market Realist]
▶ How Pacific Drillings Top Line Fared in 4Q16   [09:07AM  Market Realist]
▶ Pacific Drilling Launches Consent Solicitation   [Sep-22-16 06:30AM  Business Wire]
▶ Pacific Drilling Announces Second-Quarter 2016 Results   [Aug-07-16 05:15PM  Business Wire]
Stock chart of PACD Financial statements of PACD Annual reports of PACD
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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