Intrinsic value of Pioneer Energy Services - PES

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$3.50

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$3.50

 
Intrinsic value

$0.88

 
Up/down potential

-75%

 
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 PES 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 0.3

 

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, %
  -48.80
  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
  277
  283
  289
  296
  305
  314
  324
  335
  347
  360
  374
  389
  404
  421
  439
  458
  478
  499
  522
  546
  571
  597
  625
  654
  685
  718
  752
  788
  827
  867
  909
Variable operating expenses, $m
 
  342
  349
  358
  369
  380
  392
  405
  420
  435
  452
  470
  489
  509
  531
  554
  578
  604
  631
  660
  690
  722
  756
  791
  829
  868
  910
  953
  999
  1,048
  1,099
Fixed operating expenses, $m
 
  58
  60
  61
  63
  64
  66
  68
  69
  71
  73
  75
  77
  79
  81
  83
  85
  87
  89
  91
  93
  96
  98
  101
  103
  106
  108
  111
  114
  117
  120
Total operating expenses, $m
  391
  400
  409
  419
  432
  444
  458
  473
  489
  506
  525
  545
  566
  588
  612
  637
  663
  691
  720
  751
  783
  818
  854
  892
  932
  974
  1,018
  1,064
  1,113
  1,165
  1,219
Operating income, $m
  -114
  -117
  -120
  -123
  -127
  -130
  -134
  -138
  -142
  -146
  -151
  -156
  -161
  -167
  -172
  -178
  -185
  -191
  -198
  -205
  -213
  -221
  -229
  -237
  -246
  -256
  -266
  -276
  -287
  -298
  -309
EBITDA, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -1
  0
  1
  2
  3
  4
  5
  7
  9
  11
  13
  15
  18
  20
  23
  26
  30
  33
  37
  42
  46
  51
  56
  61
Interest expense (income), $m
  25
  23
  24
  25
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  38
  40
  42
  44
  47
  49
  51
  54
  57
  60
  63
  66
  69
  73
  77
  81
  85
Earnings before tax, $m
  -139
  -141
  -144
  -148
  -152
  -156
  -161
  -166
  -172
  -177
  -183
  -190
  -196
  -203
  -211
  -219
  -227
  -236
  -245
  -254
  -264
  -275
  -286
  -297
  -309
  -322
  -335
  -349
  -363
  -379
  -394
Tax expense, $m
  -11
  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
  -128
  -141
  -144
  -148
  -152
  -156
  -161
  -166
  -172
  -177
  -183
  -190
  -196
  -203
  -211
  -219
  -227
  -236
  -245
  -254
  -264
  -275
  -286
  -297
  -309
  -322
  -335
  -349
  -363
  -379
  -394

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  10
  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
  700
  705
  721
  739
  760
  783
  808
  836
  866
  898
  932
  969
  1,009
  1,050
  1,095
  1,142
  1,192
  1,245
  1,301
  1,360
  1,423
  1,489
  1,558
  1,632
  1,709
  1,790
  1,876
  1,966
  2,061
  2,161
  2,266
Adjusted assets (=assets-cash), $m
  690
  705
  721
  739
  760
  783
  808
  836
  866
  898
  932
  969
  1,009
  1,050
  1,095
  1,142
  1,192
  1,245
  1,301
  1,360
  1,423
  1,489
  1,558
  1,632
  1,709
  1,790
  1,876
  1,966
  2,061
  2,161
  2,266
Revenue / Adjusted assets
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.400
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
  0.401
Average production assets, $m
  645
  657
  673
  690
  709
  731
  754
  780
  808
  838
  870
  904
  941
  980
  1,022
  1,066
  1,113
  1,162
  1,214
  1,269
  1,328
  1,389
  1,454
  1,523
  1,595
  1,671
  1,751
  1,835
  1,923
  2,016
  2,114
Working capital, $m
  48
  39
  40
  41
  42
  43
  44
  46
  48
  49
  51
  53
  55
  58
  60
  63
  65
  68
  71
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  119
  124
Total debt, $m
  339
  348
  358
  369
  381
  395
  411
  427
  446
  465
  486
  508
  532
  558
  585
  613
  644
  676
  710
  746
  784
  824
  866
  910
  957
  1,007
  1,059
  1,114
  1,171
  1,232
  1,295
Total liabilities, $m
  419
  428
  438
  449
  461
  475
  491
  507
  526
  545
  566
  588
  612
  638
  665
  693
  724
  756
  790
  826
  864
  904
  946
  990
  1,037
  1,087
  1,139
  1,194
  1,251
  1,312
  1,375
Total equity, $m
  281
  277
  283
  291
  299
  308
  318
  329
  340
  353
  366
  381
  396
  413
  430
  449
  469
  489
  511
  535
  559
  585
  612
  641
  672
  704
  737
  773
  810
  849
  891
Total liabilities and equity, $m
  700
  705
  721
  740
  760
  783
  809
  836
  866
  898
  932
  969
  1,008
  1,051
  1,095
  1,142
  1,193
  1,245
  1,301
  1,361
  1,423
  1,489
  1,558
  1,631
  1,709
  1,791
  1,876
  1,967
  2,061
  2,161
  2,266
Debt-to-equity ratio
  1.206
  1.260
  1.260
  1.270
  1.280
  1.280
  1.290
  1.300
  1.310
  1.320
  1.330
  1.330
  1.340
  1.350
  1.360
  1.370
  1.370
  1.380
  1.390
  1.390
  1.400
  1.410
  1.410
  1.420
  1.430
  1.430
  1.440
  1.440
  1.450
  1.450
  1.450
Adjusted equity ratio
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -128
  -141
  -144
  -148
  -152
  -156
  -161
  -166
  -172
  -177
  -183
  -190
  -196
  -203
  -211
  -219
  -227
  -236
  -245
  -254
  -264
  -275
  -286
  -297
  -309
  -322
  -335
  -349
  -363
  -379
  -394
Depreciation, amort., depletion, $m
  114
  115
  118
  121
  124
  128
  132
  137
  142
  147
  153
  159
  165
  172
  179
  187
  195
  204
  213
  223
  233
  244
  255
  267
  280
  293
  307
  322
  337
  354
  371
Funds from operations, $m
  19
  -26
  -26
  -27
  -28
  -28
  -29
  -29
  -30
  -30
  -31
  -31
  -31
  -31
  -32
  -32
  -32
  -32
  -32
  -31
  -31
  -31
  -30
  -30
  -29
  -29
  -28
  -27
  -26
  -25
  -24
Change in working capital, $m
  14
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
Cash from operations, $m
  5
  -87
  -27
  -28
  -29
  -29
  -30
  -31
  -31
  -32
  -32
  -33
  -33
  -34
  -34
  -34
  -34
  -35
  -35
  -35
  -35
  -34
  -34
  -34
  -34
  -33
  -33
  -32
  -31
  -30
  -29
Maintenance CAPEX, $m
  0
  -113
  -115
  -118
  -121
  -124
  -128
  -132
  -137
  -142
  -147
  -153
  -159
  -165
  -172
  -179
  -187
  -195
  -204
  -213
  -223
  -233
  -244
  -255
  -267
  -280
  -293
  -307
  -322
  -337
  -354
New CAPEX, $m
  -32
  -13
  -15
  -17
  -19
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -37
  -39
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -62
  -65
  -68
  -72
  -76
  -80
  -84
  -89
  -93
  -98
Cash from investing activities, $m
  -25
  -126
  -130
  -135
  -140
  -146
  -152
  -158
  -165
  -172
  -179
  -187
  -196
  -204
  -214
  -223
  -234
  -244
  -256
  -268
  -281
  -295
  -309
  -323
  -339
  -356
  -373
  -391
  -411
  -430
  -452
Free cash flow, $m
  -20
  -213
  -158
  -163
  -169
  -175
  -182
  -189
  -196
  -204
  -212
  -220
  -229
  -238
  -247
  -258
  -268
  -279
  -291
  -303
  -316
  -329
  -343
  -358
  -373
  -389
  -406
  -423
  -442
  -461
  -481
Issuance/(repayment) of debt, $m
  -49
  9
  10
  11
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  42
  45
  47
  49
  52
  55
  58
  61
  64
Issuance/(repurchase) of shares, $m
  65
  200
  154
  159
  165
  171
  177
  183
  190
  197
  204
  212
  220
  229
  238
  247
  257
  268
  279
  290
  302
  315
  328
  342
  356
  371
  387
  404
  421
  439
  459
Cash from financing (excl. dividends), $m  
  16
  209
  164
  170
  178
  185
  192
  200
  208
  216
  225
  234
  244
  254
  265
  276
  287
  300
  313
  326
  340
  355
  370
  387
  403
  420
  439
  459
  479
  500
  523
Total cash flow (excl. dividends), $m
  -4
  -204
  -148
  -152
  -157
  -161
  -167
  -172
  -178
  -184
  -191
  -198
  -205
  -212
  -220
  -229
  -238
  -247
  -257
  -267
  -278
  -289
  -301
  -313
  -326
  -339
  -354
  -368
  -384
  -400
  -417
Retained Cash Flow (-), $m
  62
  -6
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
Prev. year cash balance distribution, $m
 
  10
  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, %
 
  10.10
  10.61
  11.14
  11.69
  12.28
  12.89
  13.53
  14.21
  14.92
  15.67
  16.45
  17.27
  18.14
  19.05
  20.00
  21.00
  22.05
  23.15
  24.31
  25.52
  26.80
  28.14
  29.55
  31.02
  32.57
  34.20
  35.91
  37.71
  39.59
  41.57
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
  57.5
  37.0
  23.7
  15.1
  9.6
  6.1
  3.9
  2.5
  1.6
  1.0
  0.6
  0.4
  0.3
  0.2
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Pioneer Energy Services Corp. provides land-based drilling and production services to oil and gas exploration and production companies in the United States and Colombia. The company’s Drilling Services segment offers contract land drilling services in Texas, North Dakota, Appalachia, and Colombia. As of December 31, 2016, this segment operated a fleet of 16 AC rigs in the United States and 8 SCR rigs in Colombia. Its Production Services segment provides well servicing, wireline services, and coiled tubing services to exploration and production companies in the onshore oil and gas producing regions in the Mid-Continent and Rocky Mountain states; and in the onshore and offshore Gulf Coast. As of December 31, 2016, this segment operated a fleet of 114 rigs with 550 horsepower and 11 rigs with 600 horsepower; 114 wireline units; and 12 onshore and 5 offshore coiled tubing units. The company was formerly known as Pioneer Drilling Company and changed its name to Pioneer Energy Services Corp. in 2012. Pioneer Energy Services Corp. was founded in 1968 and is based in San Antonio, Texas.

FINANCIAL RATIOS  of  Pioneer Energy Services (PES)

Valuation Ratios
P/E Ratio -2.1
Price to Sales 1
Price to Book 1
Price to Tangible Book
Price to Cash Flow 54
Price to Free Cash Flow -10
Growth Rates
Sales Growth Rate -48.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -80%
Cap. Spend. - 3 Yr. Gr. Rate -28%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 120.6%
Total Debt to Equity 120.6%
Interest Coverage -5
Management Effectiveness
Return On Assets -13.8%
Ret/ On Assets - 3 Yr. Avg. -9.3%
Return On Total Capital -19%
Ret/ On T. Cap. - 3 Yr. Avg. -13.8%
Return On Equity -41%
Return On Equity - 3 Yr. Avg. -28.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 26.4%
Gross Margin - 3 Yr. Avg. 31.7%
EBITDA Margin 0%
EBITDA Margin - 3 Yr. Avg. 4.5%
Operating Margin -41.2%
Oper. Margin - 3 Yr. Avg. -24.4%
Pre-Tax Margin -50.2%
Pre-Tax Margin - 3 Yr. Avg. -30.2%
Net Profit Margin -46.2%
Net Profit Margin - 3 Yr. Avg. -26.2%
Effective Tax Rate 7.9%
Eff/ Tax Rate - 3 Yr. Avg. 16.7%
Payout Ratio 0%

PES stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PES stock intrinsic value calculation we used $277 million for the last fiscal year's total revenue generated by Pioneer Energy Services. The default revenue input number comes from 2016 income statement of Pioneer Energy Services. 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 PES 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 10.1%, whose default value for PES is calculated based on our internal credit rating of Pioneer Energy Services, 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 Pioneer Energy Services.
    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 PES stock the variable cost ratio is equal to 120.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $57 million in the base year in the intrinsic value calculation for PES stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 6.9% for Pioneer Energy Services.

Corporate tax rate of 27% is the nominal tax rate for Pioneer Energy Services. 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 PES 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 PES are equal to 232.7%.

Life of production assets of 5.7 years is the average useful life of capital assets used in Pioneer Energy Services 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 PES is equal to 13.7%. 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 - $281 million for Pioneer Energy Services - 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 80.29 million for Pioneer Energy Services 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 Pioneer Energy Services at the current share price and the inputted number of shares is $0.3 billion.


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COMPANY NEWS

▶ Article 50 Submitted, Triggering Brexit   [10:13AM  Investopedia]
▶ Pioneer Energy reports 4Q loss   [06:16AM  Associated Press]
▶ Why Pioneer Energy Services Corp.'s Stock Is Sinking Today   [Dec-07-16 12:10PM  at Motley Fool]
▶ OPEC's Production Cut Has These Stocks Rallying Again Today   [Dec-01-16 12:30PM  at Motley Fool]
▶ Energy Stocks Analysts Want You to Buy Now   [Sep-04-16 10:25AM  at 24/7 Wall St.]
Stock chart of PES Financial statements of PES
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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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