Intrinsic value of QEP Resources - QEP

Previous Close

$7.44

  Intrinsic Value

$9.95

stock screener

  Rating & Target

buy

+34%

  Value-price divergence*

-8%

Previous close

$7.44

 
Intrinsic value

$9.95

 
Up/down potential

+34%

 
Rating

buy

 
Value-price divergence*

-8%

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

We calculate the intrinsic value of QEP 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 1.8

 

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, %
  -31.80
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  1,377
  2,203
  3,404
  5,091
  7,386
  10,421
  14,326
  19,230
  25,250
  32,491
  41,039
  50,961
  62,304
  75,098
  89,352
  105,062
  122,212
  140,778
  160,730
  182,035
  204,661
  228,579
  253,764
  280,197
  307,865
  336,765
  366,900
  398,283
  430,935
  464,886
  500,174
Variable operating expenses, $m
 
  2,615
  4,040
  6,043
  8,767
  12,370
  17,005
  22,826
  29,972
  38,567
  48,713
  60,491
  73,955
  89,141
  106,060
  124,708
  145,066
  167,103
  190,786
  216,075
  242,933
  271,323
  301,218
  332,593
  365,436
  399,740
  435,510
  472,762
  511,520
  551,820
  593,706
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
  2,980
  2,615
  4,040
  6,043
  8,767
  12,370
  17,005
  22,826
  29,972
  38,567
  48,713
  60,491
  73,955
  89,141
  106,060
  124,708
  145,066
  167,103
  190,786
  216,075
  242,933
  271,323
  301,218
  332,593
  365,436
  399,740
  435,510
  472,762
  511,520
  551,820
  593,706
Operating income, $m
  -1,603
  -412
  -637
  -952
  -1,381
  -1,949
  -2,679
  -3,596
  -4,722
  -6,076
  -7,674
  -9,530
  -11,651
  -14,043
  -16,709
  -19,647
  -22,854
  -26,325
  -30,056
  -34,040
  -38,272
  -42,744
  -47,454
  -52,397
  -57,571
  -62,975
  -68,610
  -74,479
  -80,585
  -86,934
  -93,532
EBITDA, $m
  -732
  -412
  -637
  -952
  -1,381
  -1,949
  -2,679
  -3,596
  -4,722
  -6,076
  -7,674
  -9,530
  -11,651
  -14,043
  -16,709
  -19,647
  -22,854
  -26,325
  -30,056
  -34,040
  -38,272
  -42,744
  -47,454
  -52,397
  -57,571
  -62,975
  -68,610
  -74,479
  -80,585
  -86,934
  -93,532
Interest expense (income), $m
  139
  131
  277
  489
  787
  1,191
  1,726
  2,415
  3,280
  4,341
  5,618
  7,126
  8,875
  10,875
  13,131
  15,645
  18,415
  21,439
  24,713
  28,231
  31,988
  35,978
  40,196
  44,637
  49,298
  54,177
  59,273
  64,587
  70,121
  75,879
  81,865
Earnings before tax, $m
  -1,953
  -543
  -914
  -1,441
  -2,168
  -3,140
  -4,406
  -6,011
  -8,002
  -10,417
  -13,293
  -16,655
  -20,526
  -24,919
  -29,840
  -35,291
  -41,269
  -47,765
  -54,770
  -62,272
  -70,260
  -78,722
  -87,650
  -97,034
  -106,869
  -117,152
  -127,883
  -139,066
  -150,706
  -162,812
  -175,398
Tax expense, $m
  -708
  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
  -1,245
  -543
  -914
  -1,441
  -2,168
  -3,140
  -4,406
  -6,011
  -8,002
  -10,417
  -13,293
  -16,655
  -20,526
  -24,919
  -29,840
  -35,291
  -41,269
  -47,765
  -54,770
  -62,272
  -70,260
  -78,722
  -87,650
  -97,034
  -106,869
  -117,152
  -127,883
  -139,066
  -150,706
  -162,812
  -175,398

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  444
  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
  7,245
  10,907
  16,851
  25,201
  36,565
  51,588
  70,922
  95,198
  125,001
  160,846
  203,162
  252,281
  308,438
  371,772
  442,335
  520,107
  605,010
  696,920
  795,691
  901,161
  1,013,173
  1,131,580
  1,256,257
  1,387,112
  1,524,084
  1,667,152
  1,816,337
  1,971,699
  2,133,343
  2,301,417
  2,476,107
Adjusted assets (=assets-cash), $m
  6,801
  10,907
  16,851
  25,201
  36,565
  51,588
  70,922
  95,198
  125,001
  160,846
  203,162
  252,281
  308,438
  371,772
  442,335
  520,107
  605,010
  696,920
  795,691
  901,161
  1,013,173
  1,131,580
  1,256,257
  1,387,112
  1,524,084
  1,667,152
  1,816,337
  1,971,699
  2,133,343
  2,301,417
  2,476,107
Revenue / Adjusted assets
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
  0.202
Average production assets, $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
Working capital, $m
  125
  -220
  -340
  -509
  -739
  -1,042
  -1,433
  -1,923
  -2,525
  -3,249
  -4,104
  -5,096
  -6,230
  -7,510
  -8,935
  -10,506
  -12,221
  -14,078
  -16,073
  -18,203
  -20,466
  -22,858
  -25,376
  -28,020
  -30,787
  -33,676
  -36,690
  -39,828
  -43,094
  -46,489
  -50,017
Total debt, $m
  2,033
  4,268
  7,525
  12,101
  18,329
  26,561
  37,156
  50,460
  66,792
  86,435
  109,624
  136,541
  167,315
  202,022
  240,690
  283,310
  329,836
  380,203
  434,330
  492,127
  553,510
  618,397
  686,720
  758,429
  833,489
  911,891
  993,643
  1,078,782
  1,167,363
  1,259,467
  1,355,198
Total liabilities, $m
  3,743
  5,977
  9,234
  13,810
  20,038
  28,270
  38,865
  52,169
  68,501
  88,144
  111,333
  138,250
  169,024
  203,731
  242,399
  285,019
  331,545
  381,912
  436,039
  493,836
  555,219
  620,106
  688,429
  760,138
  835,198
  913,600
  995,352
  1,080,491
  1,169,072
  1,261,176
  1,356,907
Total equity, $m
  3,503
  4,930
  7,617
  11,391
  16,528
  23,318
  32,057
  43,030
  56,501
  72,703
  91,829
  114,031
  139,414
  168,041
  199,935
  235,088
  273,464
  315,008
  359,652
  407,325
  457,954
  511,474
  567,828
  626,975
  688,886
  753,553
  820,984
  891,208
  964,271
  1,040,240
  1,119,201
Total liabilities and equity, $m
  7,246
  10,907
  16,851
  25,201
  36,566
  51,588
  70,922
  95,199
  125,002
  160,847
  203,162
  252,281
  308,438
  371,772
  442,334
  520,107
  605,009
  696,920
  795,691
  901,161
  1,013,173
  1,131,580
  1,256,257
  1,387,113
  1,524,084
  1,667,153
  1,816,336
  1,971,699
  2,133,343
  2,301,416
  2,476,108
Debt-to-equity ratio
  0.580
  0.870
  0.990
  1.060
  1.110
  1.140
  1.160
  1.170
  1.180
  1.190
  1.190
  1.200
  1.200
  1.200
  1.200
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
  1.210
Adjusted equity ratio
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452
  0.452

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1,245
  -543
  -914
  -1,441
  -2,168
  -3,140
  -4,406
  -6,011
  -8,002
  -10,417
  -13,293
  -16,655
  -20,526
  -24,919
  -29,840
  -35,291
  -41,269
  -47,765
  -54,770
  -62,272
  -70,260
  -78,722
  -87,650
  -97,034
  -106,869
  -117,152
  -127,883
  -139,066
  -150,706
  -162,812
  -175,398
Depreciation, amort., depletion, $m
  871
  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
Funds from operations, $m
  779
  -543
  -914
  -1,441
  -2,168
  -3,140
  -4,406
  -6,011
  -8,002
  -10,417
  -13,293
  -16,655
  -20,526
  -24,919
  -29,840
  -35,291
  -41,269
  -47,765
  -54,770
  -62,272
  -70,260
  -78,722
  -87,650
  -97,034
  -106,869
  -117,152
  -127,883
  -139,066
  -150,706
  -162,812
  -175,398
Change in working capital, $m
  115
  -83
  -120
  -169
  -230
  -303
  -391
  -490
  -602
  -724
  -855
  -992
  -1,134
  -1,279
  -1,425
  -1,571
  -1,715
  -1,857
  -1,995
  -2,131
  -2,263
  -2,392
  -2,518
  -2,643
  -2,767
  -2,890
  -3,014
  -3,138
  -3,265
  -3,395
  -3,529
Cash from operations, $m
  664
  -461
  -794
  -1,272
  -1,938
  -2,837
  -4,015
  -5,521
  -7,400
  -9,693
  -12,438
  -15,663
  -19,392
  -23,639
  -28,415
  -33,720
  -39,554
  -45,908
  -52,774
  -60,141
  -67,997
  -76,331
  -85,131
  -94,390
  -104,102
  -114,262
  -124,870
  -135,927
  -147,441
  -159,417
  -171,869
Maintenance CAPEX, $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
New CAPEX, $m
  -1,208
  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 from investing activities, $m
  -1,179
  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
Free cash flow, $m
  -515
  -461
  -794
  -1,272
  -1,938
  -2,837
  -4,015
  -5,521
  -7,400
  -9,693
  -12,438
  -15,663
  -19,392
  -23,639
  -28,415
  -33,720
  -39,554
  -45,908
  -52,774
  -60,141
  -67,997
  -76,331
  -85,131
  -94,390
  -104,102
  -114,262
  -124,870
  -135,927
  -147,441
  -159,417
  -171,869
Issuance/(repayment) of debt, $m
  -194
  2,247
  3,257
  4,576
  6,228
  8,233
  10,595
  13,303
  16,332
  19,643
  23,189
  26,917
  30,774
  34,707
  38,669
  42,619
  46,526
  50,367
  54,126
  57,798
  61,382
  64,887
  68,324
  71,708
  75,061
  78,401
  81,753
  85,138
  88,581
  92,104
  95,730
Issuance/(repurchase) of shares, $m
  777
  2,402
  3,601
  5,215
  7,304
  9,930
  13,144
  16,984
  21,473
  26,619
  32,419
  38,857
  45,909
  53,546
  61,735
  70,445
  79,645
  89,308
  99,414
  109,945
  120,889
  132,242
  144,004
  156,180
  168,780
  181,819
  195,314
  209,289
  223,769
  238,782
  254,358
Cash from financing (excl. dividends), $m  
  583
  4,649
  6,858
  9,791
  13,532
  18,163
  23,739
  30,287
  37,805
  46,262
  55,608
  65,774
  76,683
  88,253
  100,404
  113,064
  126,171
  139,675
  153,540
  167,743
  182,271
  197,129
  212,328
  227,888
  243,841
  260,220
  277,067
  294,427
  312,350
  330,886
  350,088
Total cash flow (excl. dividends), $m
  68
  4,189
  6,064
  8,518
  11,594
  15,327
  19,724
  24,767
  30,405
  36,569
  43,170
  50,111
  57,291
  64,613
  71,989
  79,343
  86,617
  93,767
  100,766
  107,601
  114,274
  120,798
  127,196
  133,498
  139,739
  145,958
  152,198
  158,500
  164,910
  171,469
  178,219
Retained Cash Flow (-), $m
  445
  -2,402
  -3,601
  -5,215
  -7,304
  -9,930
  -13,144
  -16,984
  -21,473
  -26,619
  -32,419
  -38,857
  -45,909
  -53,546
  -61,735
  -70,445
  -79,645
  -89,308
  -99,414
  -109,945
  -120,889
  -132,242
  -144,004
  -156,180
  -168,780
  -181,819
  -195,314
  -209,289
  -223,769
  -238,782
  -254,358
Prev. year cash balance distribution, $m
 
  432
  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
 
  2,218
  2,464
  3,303
  4,289
  5,396
  6,580
  7,783
  8,932
  9,950
  10,751
  11,254
  11,382
  11,067
  10,254
  8,899
  6,973
  4,459
  1,352
  -2,344
  -6,615
  -11,444
  -16,808
  -22,682
  -29,041
  -35,860
  -43,117
  -50,789
  -58,859
  -67,313
  -76,139
Discount rate, %
 
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
 
  2,101
  2,198
  2,760
  3,336
  3,882
  4,348
  4,690
  4,869
  4,865
  4,674
  4,308
  3,798
  3,184
  2,515
  1,838
  1,197
  628
  154
  -212
  -469
  -624
  -692
  -692
  -644
  -565
  -472
  -377
  -289
  -213
  -151
Current shareholders' claim on cash, %
  100
  47.2
  23.1
  11.7
  6.1
  3.3
  1.8
  1.0
  0.6
  0.4
  0.2
  0.1
  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
  0.0
  0.0
  0.0

QEP Resources, Inc., through its subsidiaries, operates as a natural gas and crude oil exploration and production company in the United States. The company conducts exploration and production activities in the Williston Basin in North Dakota, Permian Basin in western Texas; Pinedale Anticline in western Wyoming; Uinta Basin in eastern Utah; Haynesville/Cotton Valley in northwestern Louisiana; and other proven properties in Wyoming, Utah, and Colorado. As of December 31, 2016, it had estimated proved reserves of 731.4 MMboe. The company sells its gas, oil, and natural gas liquids (NGL) to various customers, including wholesale marketers, industrial users, local distribution companies, utilities, and other companies. In addition, it operates an underground gas storage facility. QEP Resources, Inc. is headquartered in Denver, Colorado.

FINANCIAL RATIOS  of  QEP Resources (QEP)

Valuation Ratios
P/E Ratio -1.4
Price to Sales 1.3
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow 2.7
Price to Free Cash Flow -3.3
Growth Rates
Sales Growth Rate -31.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.5%
Cap. Spend. - 3 Yr. Gr. Rate -5.5%
Financial Strength
Quick Ratio 37
Current Ratio 0
LT Debt to Equity 57.7%
Total Debt to Equity 58%
Interest Coverage -13
Management Effectiveness
Return On Assets -14.8%
Ret/ On Assets - 3 Yr. Avg. -2%
Return On Total Capital -21.3%
Ret/ On T. Cap. - 3 Yr. Avg. -3.8%
Return On Equity -33.4%
Return On Equity - 3 Yr. Avg. -5.4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin -68.5%
EBITDA Margin - 3 Yr. Avg. -4.5%
Operating Margin -116.4%
Oper. Margin - 3 Yr. Avg. -53.3%
Pre-Tax Margin -141.8%
Pre-Tax Margin - 3 Yr. Avg. -57.6%
Net Profit Margin -90.4%
Net Profit Margin - 3 Yr. Avg. -24.9%
Effective Tax Rate 36.3%
Eff/ Tax Rate - 3 Yr. Avg. 37%
Payout Ratio 0%

QEP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the QEP stock intrinsic value calculation we used $1377 million for the last fiscal year's total revenue generated by QEP Resources. The default revenue input number comes from 2016 income statement of QEP 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 QEP stock valuation model: a) initial revenue growth rate of 60% 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 5.6%, whose default value for QEP is calculated based on our internal credit rating of QEP 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 QEP 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 QEP stock the variable cost ratio is equal to 118.7%.

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 QEP 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 6.5% for QEP Resources.

Corporate tax rate of 27% is the nominal tax rate for QEP 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 QEP 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 QEP are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in QEP 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 QEP is equal to -10%. 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 - $3503 million for QEP 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 236.16 million for QEP 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 QEP Resources at the current share price and the inputted number of shares is $1.8 billion.

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COMPANY NEWS

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▶ What Could Offset OPECs Crude Oil Production Cut Deal?   [Jun-02-17 11:35AM  Market Realist]
▶ ETFs with exposure to QEP Resources, Inc. : June 1, 2017   [Jun-01-17 02:04PM  Capital Cube]
▶ Hedge Funds Raised Bullish Bets on US Crude Oil   [May-30-17 08:40AM  Market Realist]
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▶ Energy Calendar for Oil and Gas Traders: May 15   [May-01-17 07:52AM  Market Realist]
▶ QEP Resources tops Street 1Q forecasts   [Apr-26-17 05:58PM  Associated Press]
▶ US Dollar Could Support Crude Oil Prices This Week   [Apr-24-17 12:05PM  Market Realist]
▶ Gasoline Futures Fell from 20-Month Highs   [Apr-20-17 09:53AM  Market Realist]
▶ EIAs Gasoline Inventories Could Surprise Traders   [Apr-19-17 07:37AM  Market Realist]
▶ Analyzing OPECs Crude Oil Production Cut Deal   [Apr-18-17 07:38AM  Market Realist]
▶ EIA Upgrades US Crude Oil Production for 2018   [Apr-13-17 08:55AM  Market Realist]
▶ US Dollar Could Impact Crude Oil Prices in 2Q17   [Apr-03-17 07:38AM  Market Realist]
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▶ Oil and Gas Stock Roundup: Look Out Below!   [Feb-25-17 10:00AM  at Motley Fool]
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Stock chart of QEP Financial statements of QEP
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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