Intrinsic value of Pioneer Natural Resources - PXD

Previous Close

$145.09

  Intrinsic Value

$14.80

stock screener

  Rating & Target

str. sell

-90%

  Value-price divergence*

+55%

Previous close

$145.09

 
Intrinsic value

$14.80

 
Up/down potential

-90%

 
Rating

str. sell

 
Value-price divergence*

+55%

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

We calculate the intrinsic value of PXD 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 24.8

 

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, %
  25.75
  27.50
  25.25
  23.23
  21.40
  19.76
  18.29
  16.96
  15.76
  14.69
  13.72
  12.85
  12.06
  11.35
  10.72
  10.15
  9.63
  9.17
  8.75
  8.38
  8.04
  7.74
  7.46
  7.22
  6.99
  6.79
  6.62
  6.45
  6.31
  6.18
  6.06
Revenue, $m
  3,951
  5,038
  6,310
  7,775
  9,439
  11,304
  13,371
  15,639
  18,104
  20,762
  23,610
  26,643
  29,856
  33,247
  36,810
  40,546
  44,451
  48,527
  52,774
  57,195
  61,793
  66,573
  71,541
  76,703
  82,068
  87,644
  93,442
  99,473
  105,748
  112,280
  119,084
Variable operating expenses, $m
 
  8,103
  10,142
  12,491
  15,159
  18,149
  21,463
  25,098
  29,050
  33,312
  37,877
  42,712
  47,863
  53,298
  59,011
  64,999
  71,260
  77,794
  84,603
  91,691
  99,062
  106,725
  114,689
  122,964
  131,564
  140,504
  149,799
  159,466
  169,526
  179,998
  190,906
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
  4,576
  8,103
  10,142
  12,491
  15,159
  18,149
  21,463
  25,098
  29,050
  33,312
  37,877
  42,712
  47,863
  53,298
  59,011
  64,999
  71,260
  77,794
  84,603
  91,691
  99,062
  106,725
  114,689
  122,964
  131,564
  140,504
  149,799
  159,466
  169,526
  179,998
  190,906
Operating income, $m
  -625
  -3,065
  -3,833
  -4,716
  -5,720
  -6,845
  -8,092
  -9,459
  -10,946
  -12,549
  -14,267
  -16,069
  -18,007
  -20,052
  -22,201
  -24,454
  -26,809
  -29,267
  -31,829
  -34,495
  -37,269
  -40,151
  -43,148
  -46,261
  -49,496
  -52,860
  -56,356
  -59,994
  -63,778
  -67,718
  -71,822
EBITDA, $m
  855
  -1,199
  -1,502
  -1,850
  -2,246
  -2,690
  -3,182
  -3,722
  -4,308
  -4,941
  -5,619
  -6,341
  -7,105
  -7,912
  -8,760
  -9,649
  -10,578
  -11,548
  -12,559
  -13,611
  -14,706
  -15,843
  -17,025
  -18,254
  -19,531
  -20,858
  -22,237
  -23,673
  -25,166
  -26,721
  -28,340
Interest expense (income), $m
  196
  155
  243
  346
  464
  598
  748
  914
  1,097
  1,295
  1,509
  1,738
  1,982
  2,241
  2,514
  2,801
  3,101
  3,416
  3,744
  4,085
  4,441
  4,811
  5,196
  5,596
  6,011
  6,443
  6,892
  7,358
  7,844
  8,349
  8,875
Earnings before tax, $m
  -959
  -3,221
  -4,076
  -5,062
  -6,184
  -7,443
  -8,839
  -10,373
  -12,042
  -13,844
  -15,776
  -17,807
  -19,989
  -22,292
  -24,715
  -27,254
  -29,910
  -32,683
  -35,573
  -38,581
  -41,710
  -44,963
  -48,343
  -51,857
  -55,508
  -59,303
  -63,248
  -67,352
  -71,622
  -76,067
  -80,696
Tax expense, $m
  -403
  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
  -556
  -3,221
  -4,076
  -5,062
  -6,184
  -7,443
  -8,839
  -10,373
  -12,042
  -13,844
  -15,776
  -17,807
  -19,989
  -22,292
  -24,715
  -27,254
  -29,910
  -32,683
  -35,573
  -38,581
  -41,710
  -44,963
  -48,343
  -51,857
  -55,508
  -59,303
  -63,248
  -67,352
  -71,622
  -76,067
  -80,696

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,559
  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
  16,459
  17,738
  22,217
  27,376
  33,236
  39,804
  47,082
  55,066
  63,745
  73,107
  83,135
  93,814
  105,128
  117,065
  129,614
  142,766
  156,518
  170,870
  185,825
  201,392
  217,582
  234,413
  251,905
  270,082
  288,972
  308,607
  329,022
  350,256
  372,351
  395,354
  419,311
Adjusted assets (=assets-cash), $m
  13,900
  17,738
  22,217
  27,376
  33,236
  39,804
  47,082
  55,066
  63,745
  73,107
  83,135
  93,814
  105,128
  117,065
  129,614
  142,766
  156,518
  170,870
  185,825
  201,392
  217,582
  234,413
  251,905
  270,082
  288,972
  308,607
  329,022
  350,256
  372,351
  395,354
  419,311
Revenue / Adjusted assets
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
Average production assets, $m
  10,674
  13,611
  17,048
  21,008
  25,504
  30,544
  36,129
  42,256
  48,916
  56,100
  63,795
  71,990
  80,672
  89,832
  99,461
  109,554
  120,107
  131,120
  142,596
  154,541
  166,966
  179,881
  193,304
  207,252
  221,748
  236,815
  252,481
  268,775
  285,731
  303,382
  321,766
Working capital, $m
  1,732
  -438
  -549
  -676
  -821
  -983
  -1,163
  -1,361
  -1,575
  -1,806
  -2,054
  -2,318
  -2,598
  -2,892
  -3,202
  -3,527
  -3,867
  -4,222
  -4,591
  -4,976
  -5,376
  -5,792
  -6,224
  -6,673
  -7,140
  -7,625
  -8,129
  -8,654
  -9,200
  -9,768
  -10,360
Total debt, $m
  3,213
  4,271
  6,067
  8,136
  10,485
  13,119
  16,038
  19,240
  22,720
  26,474
  30,495
  34,777
  39,314
  44,101
  49,133
  54,407
  59,922
  65,677
  71,674
  77,916
  84,408
  91,158
  98,172
  105,461
  113,036
  120,909
  129,096
  137,611
  146,471
  155,695
  165,302
Total liabilities, $m
  6,055
  7,113
  8,909
  10,978
  13,327
  15,961
  18,880
  22,082
  25,562
  29,316
  33,337
  37,619
  42,156
  46,943
  51,975
  57,249
  62,764
  68,519
  74,516
  80,758
  87,250
  94,000
  101,014
  108,303
  115,878
  123,751
  131,938
  140,453
  149,313
  158,537
  168,144
Total equity, $m
  10,404
  10,625
  13,308
  16,398
  19,908
  23,842
  28,202
  32,985
  38,184
  43,791
  49,798
  56,194
  62,972
  70,122
  77,639
  85,517
  93,754
  102,351
  111,309
  120,634
  130,332
  140,414
  150,891
  161,779
  173,094
  184,855
  197,084
  209,803
  223,039
  236,817
  251,167
Total liabilities and equity, $m
  16,459
  17,738
  22,217
  27,376
  33,235
  39,803
  47,082
  55,067
  63,746
  73,107
  83,135
  93,813
  105,128
  117,065
  129,614
  142,766
  156,518
  170,870
  185,825
  201,392
  217,582
  234,414
  251,905
  270,082
  288,972
  308,606
  329,022
  350,256
  372,352
  395,354
  419,311
Debt-to-equity ratio
  0.309
  0.400
  0.460
  0.500
  0.530
  0.550
  0.570
  0.580
  0.600
  0.600
  0.610
  0.620
  0.620
  0.630
  0.630
  0.640
  0.640
  0.640
  0.640
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.660
  0.660
  0.660
  0.660
  0.660
Adjusted equity ratio
  0.564
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -556
  -3,221
  -4,076
  -5,062
  -6,184
  -7,443
  -8,839
  -10,373
  -12,042
  -13,844
  -15,776
  -17,807
  -19,989
  -22,292
  -24,715
  -27,254
  -29,910
  -32,683
  -35,573
  -38,581
  -41,710
  -44,963
  -48,343
  -51,857
  -55,508
  -59,303
  -63,248
  -67,352
  -71,622
  -76,067
  -80,696
Depreciation, amort., depletion, $m
  1,480
  1,867
  2,331
  2,866
  3,474
  4,155
  4,910
  5,737
  6,637
  7,608
  8,648
  9,728
  10,902
  12,139
  13,441
  14,805
  16,231
  17,719
  19,270
  20,884
  22,563
  24,308
  26,122
  28,007
  29,966
  32,002
  34,119
  36,321
  38,612
  40,998
  43,482
Funds from operations, $m
  1,356
  -1,354
  -1,745
  -2,196
  -2,710
  -3,288
  -3,930
  -4,636
  -5,405
  -6,236
  -7,128
  -8,079
  -9,088
  -10,153
  -11,274
  -12,450
  -13,680
  -14,964
  -16,303
  -17,697
  -19,147
  -20,654
  -22,221
  -23,850
  -25,542
  -27,301
  -29,129
  -31,031
  -33,010
  -35,069
  -37,214
Change in working capital, $m
  -142
  -95
  -111
  -127
  -145
  -162
  -180
  -197
  -214
  -231
  -248
  -264
  -280
  -295
  -310
  -325
  -340
  -355
  -370
  -385
  -400
  -416
  -432
  -449
  -467
  -485
  -504
  -525
  -546
  -568
  -592
Cash from operations, $m
  1,498
  -1,260
  -1,634
  -2,069
  -2,565
  -3,126
  -3,750
  -4,439
  -5,191
  -6,005
  -6,880
  -7,815
  -8,808
  -9,858
  -10,964
  -12,125
  -13,340
  -14,609
  -15,933
  -17,312
  -18,747
  -20,239
  -21,789
  -23,401
  -25,075
  -26,816
  -28,625
  -30,506
  -32,464
  -34,501
  -36,622
Maintenance CAPEX, $m
  0
  -1,442
  -1,839
  -2,304
  -2,839
  -3,446
  -4,128
  -4,882
  -5,710
  -6,610
  -7,581
  -8,621
  -9,728
  -10,902
  -12,139
  -13,441
  -14,805
  -16,231
  -17,719
  -19,270
  -20,884
  -22,563
  -24,308
  -26,122
  -28,007
  -29,966
  -32,002
  -34,119
  -36,321
  -38,612
  -40,998
New CAPEX, $m
  -2,060
  -2,937
  -3,437
  -3,959
  -4,496
  -5,040
  -5,585
  -6,127
  -6,660
  -7,184
  -7,695
  -8,195
  -8,682
  -9,160
  -9,629
  -10,093
  -10,553
  -11,013
  -11,476
  -11,945
  -12,424
  -12,916
  -13,423
  -13,948
  -14,496
  -15,067
  -15,666
  -16,294
  -16,955
  -17,651
  -18,384
Cash from investing activities, $m
  -3,820
  -4,379
  -5,276
  -6,263
  -7,335
  -8,486
  -9,713
  -11,009
  -12,370
  -13,794
  -15,276
  -16,816
  -18,410
  -20,062
  -21,768
  -23,534
  -25,358
  -27,244
  -29,195
  -31,215
  -33,308
  -35,479
  -37,731
  -40,070
  -42,503
  -45,033
  -47,668
  -50,413
  -53,276
  -56,263
  -59,382
Free cash flow, $m
  -2,322
  -5,640
  -6,911
  -8,332
  -9,900
  -11,612
  -13,463
  -15,448
  -17,561
  -19,799
  -22,156
  -24,630
  -27,219
  -29,920
  -32,733
  -35,658
  -38,697
  -41,853
  -45,128
  -48,527
  -52,055
  -55,717
  -59,520
  -63,471
  -67,578
  -71,849
  -76,293
  -80,920
  -85,740
  -90,764
  -96,004
Issuance/(repayment) of debt, $m
  -455
  1,543
  1,796
  2,069
  2,350
  2,634
  2,919
  3,202
  3,480
  3,754
  4,021
  4,282
  4,537
  4,787
  5,032
  5,274
  5,515
  5,755
  5,997
  6,242
  6,492
  6,749
  7,014
  7,289
  7,575
  7,874
  8,186
  8,515
  8,860
  9,224
  9,607
Issuance/(repurchase) of shares, $m
  2,516
  5,516
  6,759
  8,153
  9,693
  11,377
  13,199
  15,156
  17,241
  19,452
  21,783
  24,204
  26,767
  29,443
  32,231
  35,132
  38,148
  41,280
  44,531
  47,905
  51,408
  55,044
  58,821
  62,745
  66,823
  71,064
  75,477
  80,071
  84,857
  89,845
  95,047
Cash from financing (excl. dividends), $m  
  2,062
  7,059
  8,555
  10,222
  12,043
  14,011
  16,118
  18,358
  20,721
  23,206
  25,804
  28,486
  31,304
  34,230
  37,263
  40,406
  43,663
  47,035
  50,528
  54,147
  57,900
  61,793
  65,835
  70,034
  74,398
  78,938
  83,663
  88,586
  93,717
  99,069
  104,654
Total cash flow (excl. dividends), $m
  -260
  1,419
  1,644
  1,890
  2,143
  2,399
  2,655
  2,910
  3,161
  3,407
  3,648
  3,855
  4,085
  4,310
  4,530
  4,748
  4,965
  5,181
  5,399
  5,620
  5,845
  6,077
  6,315
  6,563
  6,820
  7,089
  7,371
  7,666
  7,977
  8,305
  8,650
Retained Cash Flow (-), $m
  -2,036
  -5,516
  -6,759
  -8,153
  -9,693
  -11,377
  -13,199
  -15,156
  -17,241
  -19,452
  -21,783
  -24,204
  -26,767
  -29,443
  -32,231
  -35,132
  -38,148
  -41,280
  -44,531
  -47,905
  -51,408
  -55,044
  -58,821
  -62,745
  -66,823
  -71,064
  -75,477
  -80,071
  -84,857
  -89,845
  -95,047
Prev. year cash balance distribution, $m
 
  2,074
  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
 
  -2,023
  -5,115
  -6,263
  -7,551
  -8,978
  -10,544
  -12,246
  -14,081
  -16,045
  -18,135
  -20,348
  -22,682
  -25,133
  -27,701
  -30,384
  -33,183
  -36,098
  -39,131
  -42,285
  -45,563
  -48,968
  -52,506
  -56,182
  -60,003
  -63,975
  -68,106
  -72,405
  -76,880
  -81,541
  -86,397
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -1,939
  -4,682
  -5,450
  -6,217
  -6,959
  -7,652
  -8,273
  -8,801
  -9,217
  -9,507
  -9,663
  -9,679
  -9,556
  -9,300
  -8,920
  -8,432
  -7,854
  -7,206
  -6,511
  -5,790
  -5,065
  -4,357
  -3,682
  -3,056
  -2,489
  -1,987
  -1,554
  -1,189
  -890
  -651
Current shareholders' claim on cash, %
  100
  78.3
  61.8
  49.2
  39.4
  31.8
  25.8
  21.1
  17.3
  14.2
  11.8
  9.8
  8.2
  6.8
  5.7
  4.8
  4.1
  3.4
  2.9
  2.5
  2.1
  1.8
  1.5
  1.3
  1.1
  0.9
  0.8
  0.7
  0.6
  0.5
  0.4

Pioneer Natural Resources Company is an oil and gas exploration and production company. The Company explores for, develops and produces oil, natural gas liquids (NGLs) and gas within the United States, with operations primarily in the Permian Basin in West Texas, the Eagle Ford Shale play in South Texas, the Raton field in southeast Colorado and the West Panhandle field in the Texas Panhandle. As of December 31, 2016, the Company owned interests in eight gas processing plants and nine treating facilities. As of December 31, 2016, its Spraberry/Wolfcamp field covered approximately 800,000 gross acres (690,000 net acres). The Company completed 12 Eagle Ford Shale wells during the fiscal year ended December 31, 2016. As of December 31, 2016, the Company owned approximately 185,000 gross acres (165,000 net acres) in the center of the Raton Basin. As of December 31, 2016, the Company's gas had an average energy content of 1,400 British thermal unit (Btu).

FINANCIAL RATIOS  of  Pioneer Natural Resources (PXD)

Valuation Ratios
P/E Ratio -44.3
Price to Sales 6.2
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 16.4
Price to Free Cash Flow -43.8
Growth Rates
Sales Growth Rate 25.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.9%
Cap. Spend. - 3 Yr. Gr. Rate -6.5%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 26.2%
Total Debt to Equity 30.9%
Interest Coverage -4
Management Effectiveness
Return On Assets -2.8%
Ret/ On Assets - 3 Yr. Avg. 1.3%
Return On Total Capital -4.3%
Ret/ On T. Cap. - 3 Yr. Avg. 0.8%
Return On Equity -5.9%
Return On Equity - 3 Yr. Avg. 1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 41.4%
Gross Margin - 3 Yr. Avg. 48.2%
EBITDA Margin 18.1%
EBITDA Margin - 3 Yr. Avg. 39.7%
Operating Margin -15.8%
Oper. Margin - 3 Yr. Avg. -17.6%
Pre-Tax Margin -24.3%
Pre-Tax Margin - 3 Yr. Avg. -0.2%
Net Profit Margin -14.1%
Net Profit Margin - 3 Yr. Avg. -0.4%
Effective Tax Rate 42%
Eff/ Tax Rate - 3 Yr. Avg. 37.9%
Payout Ratio -2.3%

PXD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PXD stock intrinsic value calculation we used $3951 million for the last fiscal year's total revenue generated by Pioneer Natural Resources. The default revenue input number comes from 2016 income statement of Pioneer Natural Resources. 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 PXD stock valuation model: a) initial revenue growth rate of 27.5% 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 4.3%, whose default value for PXD is calculated based on our internal credit rating of Pioneer Natural Resources, 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 Natural Resources.
    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 PXD stock the variable cost ratio is equal to 161%.

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 PXD 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 Pioneer Natural Resources.

Corporate tax rate of 27% is the nominal tax rate for Pioneer Natural Resources. 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 PXD 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 PXD are equal to 270.2%.

Life of production assets of 7.4 years is the average useful life of capital assets used in Pioneer Natural Resources 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 PXD is equal to -8.7%. 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 - $10404 million for Pioneer Natural Resources - 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 171.13 million for Pioneer Natural Resources 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 Natural Resources at the current share price and the inputted number of shares is $24.8 billion.

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Financial statements of PXD
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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