Intrinsic value of Rice Energy - RICE

Previous Close

$26.32

  Intrinsic Value

$2.50

stock screener

  Rating & Target

str. sell

-91%

  Value-price divergence*

-101%

Previous close

$26.32

 
Intrinsic value

$2.50

 
Up/down potential

-91%

 
Rating

str. sell

 
Value-price divergence*

-101%

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

We calculate the intrinsic value of RICE 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 5.3

 

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, %
  55.18
  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
  779
  1,246
  1,926
  2,880
  4,179
  5,895
  8,105
  10,879
  14,285
  18,381
  23,217
  28,830
  35,247
  42,485
  50,548
  59,436
  69,138
  79,641
  90,928
  102,981
  115,781
  129,312
  143,560
  158,514
  174,166
  190,515
  207,564
  225,318
  243,790
  262,997
  282,960
Variable operating expenses, $m
 
  2,282
  3,477
  5,157
  7,443
  10,465
  14,353
  19,237
  25,231
  32,441
  40,953
  50,745
  62,041
  74,780
  88,973
  104,617
  121,694
  140,182
  160,049
  181,263
  203,794
  227,611
  252,689
  279,010
  306,561
  335,338
  365,346
  396,596
  429,110
  462,917
  498,055
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
  844
  2,282
  3,477
  5,157
  7,443
  10,465
  14,353
  19,237
  25,231
  32,441
  40,953
  50,745
  62,041
  74,780
  88,973
  104,617
  121,694
  140,182
  160,049
  181,263
  203,794
  227,611
  252,689
  279,010
  306,561
  335,338
  365,346
  396,596
  429,110
  462,917
  498,055
Operating income, $m
  -65
  -1,035
  -1,552
  -2,277
  -3,264
  -4,569
  -6,249
  -8,358
  -10,947
  -14,060
  -17,736
  -21,915
  -26,794
  -32,295
  -38,425
  -45,181
  -52,556
  -60,540
  -69,120
  -78,282
  -88,013
  -98,298
  -109,129
  -120,496
  -132,395
  -144,823
  -157,782
  -171,278
  -185,320
  -199,920
  -215,095
EBITDA, $m
  305
  -451
  -696
  -1,042
  -1,511
  -2,132
  -2,931
  -3,934
  -5,166
  -6,648
  -8,397
  -10,427
  -12,748
  -15,365
  -18,281
  -21,496
  -25,005
  -28,803
  -32,885
  -37,244
  -41,874
  -46,767
  -51,920
  -57,329
  -62,989
  -68,902
  -75,068
  -81,489
  -88,170
  -95,116
  -102,336
Interest expense (income), $m
  99
  102
  299
  586
  989
  1,537
  2,262
  3,195
  4,366
  5,804
  7,534
  9,576
  11,946
  14,655
  17,711
  21,116
  24,868
  28,965
  33,400
  38,165
  43,254
  48,659
  54,372
  60,388
  66,702
  73,311
  80,214
  87,412
  94,908
  102,708
  110,817
Earnings before tax, $m
  -391
  -1,137
  -1,851
  -2,863
  -4,253
  -6,107
  -8,511
  -11,553
  -15,313
  -19,865
  -25,270
  -31,491
  -38,739
  -46,950
  -56,136
  -66,297
  -77,425
  -89,505
  -102,520
  -116,448
  -131,267
  -146,957
  -163,501
  -180,884
  -199,096
  -218,133
  -237,996
  -258,690
  -280,228
  -302,628
  -325,913
Tax expense, $m
  -142
  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
  -270
  -1,137
  -1,851
  -2,863
  -4,253
  -6,107
  -8,511
  -11,553
  -15,313
  -19,865
  -25,270
  -31,491
  -38,739
  -46,950
  -56,136
  -66,297
  -77,425
  -89,505
  -102,520
  -116,448
  -131,267
  -146,957
  -163,501
  -180,884
  -199,096
  -218,133
  -237,996
  -258,690
  -280,228
  -302,628
  -325,913

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  470
  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
  7,818
  11,758
  18,167
  27,169
  39,420
  55,616
  76,459
  102,631
  134,761
  173,405
  219,024
  271,978
  332,519
  400,798
  476,870
  560,715
  652,246
  751,332
  857,815
  971,520
  1,092,276
  1,219,928
  1,354,340
  1,495,411
  1,643,077
  1,797,316
  1,958,147
  2,125,639
  2,299,904
  2,481,100
  2,669,430
Adjusted assets (=assets-cash), $m
  7,348
  11,758
  18,167
  27,169
  39,420
  55,616
  76,459
  102,631
  134,761
  173,405
  219,024
  271,978
  332,519
  400,798
  476,870
  560,715
  652,246
  751,332
  857,815
  971,520
  1,092,276
  1,219,928
  1,354,340
  1,495,411
  1,643,077
  1,797,316
  1,958,147
  2,125,639
  2,299,904
  2,481,100
  2,669,430
Revenue / Adjusted assets
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
Average production assets, $m
  3,105
  4,967
  7,674
  11,476
  16,651
  23,493
  32,297
  43,352
  56,924
  73,248
  92,518
  114,886
  140,460
  169,301
  201,435
  236,851
  275,515
  317,370
  362,349
  410,380
  461,389
  515,310
  572,087
  631,677
  694,052
  759,204
  827,141
  897,891
  971,503
  1,048,041
  1,127,594
Working capital, $m
  161
  -125
  -193
  -288
  -418
  -590
  -810
  -1,088
  -1,428
  -1,838
  -2,322
  -2,883
  -3,525
  -4,248
  -5,055
  -5,944
  -6,914
  -7,964
  -9,093
  -10,298
  -11,578
  -12,931
  -14,356
  -15,851
  -17,417
  -19,052
  -20,756
  -22,532
  -24,379
  -26,300
  -28,296
Total debt, $m
  1,522
  4,467
  8,747
  14,761
  22,945
  33,764
  47,687
  65,169
  86,632
  112,446
  142,920
  178,293
  218,735
  264,345
  315,161
  371,169
  432,312
  498,502
  569,632
  645,587
  726,253
  811,524
  901,311
  995,547
  1,094,188
  1,197,219
  1,304,654
  1,416,539
  1,532,948
  1,653,987
  1,779,791
Total liabilities, $m
  4,909
  7,855
  12,135
  18,149
  26,333
  37,152
  51,075
  68,557
  90,020
  115,834
  146,308
  181,681
  222,123
  267,733
  318,549
  374,557
  435,700
  501,890
  573,020
  648,975
  729,641
  814,912
  904,699
  998,935
  1,097,576
  1,200,607
  1,308,042
  1,419,927
  1,536,336
  1,657,375
  1,783,179
Total equity, $m
  2,908
  3,904
  6,031
  9,020
  13,088
  18,465
  25,385
  34,073
  44,741
  57,570
  72,716
  90,297
  110,396
  133,065
  158,321
  186,157
  216,546
  249,442
  284,794
  322,545
  362,636
  405,016
  449,641
  496,477
  545,502
  596,709
  650,105
  705,712
  763,568
  823,725
  886,251
Total liabilities and equity, $m
  7,817
  11,759
  18,166
  27,169
  39,421
  55,617
  76,460
  102,630
  134,761
  173,404
  219,024
  271,978
  332,519
  400,798
  476,870
  560,714
  652,246
  751,332
  857,814
  971,520
  1,092,277
  1,219,928
  1,354,340
  1,495,412
  1,643,078
  1,797,316
  1,958,147
  2,125,639
  2,299,904
  2,481,100
  2,669,430
Debt-to-equity ratio
  0.523
  1.140
  1.450
  1.640
  1.750
  1.830
  1.880
  1.910
  1.940
  1.950
  1.970
  1.970
  1.980
  1.990
  1.990
  1.990
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.010
  2.010
  2.010
  2.010
  2.010
  2.010
  2.010
  2.010
Adjusted equity ratio
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -270
  -1,137
  -1,851
  -2,863
  -4,253
  -6,107
  -8,511
  -11,553
  -15,313
  -19,865
  -25,270
  -31,491
  -38,739
  -46,950
  -56,136
  -66,297
  -77,425
  -89,505
  -102,520
  -116,448
  -131,267
  -146,957
  -163,501
  -180,884
  -199,096
  -218,133
  -237,996
  -258,690
  -280,228
  -302,628
  -325,913
Depreciation, amort., depletion, $m
  370
  585
  855
  1,236
  1,753
  2,437
  3,318
  4,423
  5,780
  7,413
  9,340
  11,489
  14,046
  16,930
  20,143
  23,685
  27,552
  31,737
  36,235
  41,038
  46,139
  51,531
  57,209
  63,168
  69,405
  75,920
  82,714
  89,789
  97,150
  104,804
  112,759
Funds from operations, $m
  886
  -553
  -996
  -1,628
  -2,500
  -3,669
  -5,193
  -7,130
  -9,533
  -12,452
  -15,930
  -20,002
  -24,693
  -30,020
  -35,993
  -42,612
  -49,873
  -57,768
  -66,285
  -75,410
  -85,128
  -95,426
  -106,292
  -117,716
  -129,691
  -142,213
  -155,282
  -168,901
  -183,078
  -197,824
  -213,153
Change in working capital, $m
  400
  -47
  -68
  -95
  -130
  -172
  -221
  -277
  -341
  -410
  -484
  -561
  -642
  -724
  -806
  -889
  -970
  -1,050
  -1,129
  -1,205
  -1,280
  -1,353
  -1,425
  -1,495
  -1,565
  -1,635
  -1,705
  -1,775
  -1,847
  -1,921
  -1,996
Cash from operations, $m
  486
  -506
  -928
  -1,532
  -2,370
  -3,498
  -4,972
  -6,852
  -9,192
  -12,042
  -15,447
  -19,441
  -24,051
  -29,297
  -35,186
  -41,723
  -48,903
  -56,718
  -65,156
  -74,205
  -83,848
  -94,073
  -104,868
  -116,221
  -128,126
  -140,578
  -153,577
  -167,126
  -181,231
  -195,903
  -211,157
Maintenance CAPEX, $m
  0
  -310
  -497
  -767
  -1,148
  -1,665
  -2,349
  -3,230
  -4,335
  -5,692
  -7,325
  -9,252
  -11,489
  -14,046
  -16,930
  -20,143
  -23,685
  -27,552
  -31,737
  -36,235
  -41,038
  -46,139
  -51,531
  -57,209
  -63,168
  -69,405
  -75,920
  -82,714
  -89,789
  -97,150
  -104,804
New CAPEX, $m
  -881
  -1,862
  -2,707
  -3,802
  -5,175
  -6,841
  -8,804
  -11,055
  -13,572
  -16,323
  -19,270
  -22,368
  -25,573
  -28,841
  -32,134
  -35,417
  -38,664
  -41,855
  -44,979
  -48,030
  -51,009
  -53,921
  -56,777
  -59,590
  -62,376
  -65,152
  -67,937
  -70,750
  -73,611
  -76,539
  -79,552
Cash from investing activities, $m
  -1,918
  -2,172
  -3,204
  -4,569
  -6,323
  -8,506
  -11,153
  -14,285
  -17,907
  -22,015
  -26,595
  -31,620
  -37,062
  -42,887
  -49,064
  -55,560
  -62,349
  -69,407
  -76,716
  -84,265
  -92,047
  -100,060
  -108,308
  -116,799
  -125,544
  -134,557
  -143,857
  -153,464
  -163,400
  -173,689
  -184,356
Free cash flow, $m
  -1,432
  -2,679
  -4,131
  -6,102
  -8,693
  -12,004
  -16,126
  -21,137
  -27,099
  -34,058
  -42,042
  -51,061
  -61,113
  -72,184
  -84,250
  -97,283
  -111,252
  -126,125
  -141,873
  -158,470
  -175,895
  -194,133
  -213,176
  -233,020
  -253,669
  -275,135
  -297,434
  -320,590
  -344,631
  -369,592
  -395,513
Issuance/(repayment) of debt, $m
  -625
  2,945
  4,281
  6,013
  8,184
  10,819
  13,923
  17,483
  21,463
  25,814
  30,474
  35,373
  40,442
  45,610
  50,816
  56,008
  61,143
  66,190
  71,130
  75,955
  80,666
  85,271
  89,787
  94,236
  98,641
  103,031
  107,436
  111,885
  116,409
  121,039
  125,804
Issuance/(repurchase) of shares, $m
  2,455
  2,603
  3,979
  5,852
  8,321
  11,484
  15,431
  20,242
  25,980
  32,694
  40,416
  49,072
  58,839
  69,619
  81,392
  94,133
  107,813
  122,402
  137,872
  154,198
  171,358
  189,338
  208,126
  227,720
  248,121
  269,340
  291,392
  314,297
  338,084
  362,785
  388,438
Cash from financing (excl. dividends), $m  
  1,750
  5,548
  8,260
  11,865
  16,505
  22,303
  29,354
  37,725
  47,443
  58,508
  70,890
  84,445
  99,281
  115,229
  132,208
  150,141
  168,956
  188,592
  209,002
  230,153
  252,024
  274,609
  297,913
  321,956
  346,762
  372,371
  398,828
  426,182
  454,493
  483,824
  514,242
Total cash flow (excl. dividends), $m
  318
  2,869
  4,128
  5,763
  7,812
  10,298
  13,228
  16,587
  20,344
  24,450
  28,848
  33,384
  38,167
  43,045
  47,958
  52,858
  57,704
  62,467
  67,130
  71,683
  76,129
  80,475
  84,738
  88,936
  93,093
  97,237
  101,393
  105,592
  109,862
  114,232
  118,729
Retained Cash Flow (-), $m
  -1,628
  -2,603
  -3,979
  -5,852
  -8,321
  -11,484
  -15,431
  -20,242
  -25,980
  -32,694
  -40,416
  -49,072
  -58,839
  -69,619
  -81,392
  -94,133
  -107,813
  -122,402
  -137,872
  -154,198
  -171,358
  -189,338
  -208,126
  -227,720
  -248,121
  -269,340
  -291,392
  -314,297
  -338,084
  -362,785
  -388,438
Prev. year cash balance distribution, $m
 
  470
  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
 
  736
  149
  -89
  -509
  -1,185
  -2,203
  -3,654
  -5,636
  -8,244
  -11,568
  -15,688
  -20,672
  -26,574
  -33,434
  -41,275
  -50,109
  -59,935
  -70,742
  -82,515
  -95,229
  -108,862
  -123,388
  -138,784
  -155,028
  -172,104
  -189,999
  -208,705
  -228,222
  -248,553
  -269,709
Discount rate, %
 
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
 
  688
  130
  -71
  -374
  -792
  -1,328
  -1,968
  -2,686
  -3,441
  -4,184
  -4,861
  -5,420
  -5,820
  -6,032
  -6,046
  -5,868
  -5,519
  -5,034
  -4,455
  -3,826
  -3,189
  -2,578
  -2,022
  -1,538
  -1,133
  -809
  -558
  -372
  -240
  -149
Current shareholders' claim on cash, %
  100
  63.2
  40.7
  26.6
  17.7
  12.0
  8.2
  5.8
  4.1
  2.9
  2.1
  1.5
  1.1
  0.8
  0.6
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Rice Energy Inc., an independent natural gas and oil company, engages in the acquisition, exploration, and development of natural gas, oil, and natural gas liquid (NGL) properties in the Appalachian Basin. The company operates through two segments, Exploration and Production, and Midstream. As of December 31, 2015, it held approximately 92,000 net acres in the southwestern core of the Marcellus Shale, Pennsylvania; and approximately 56,000 net acres in the southeastern core of the Utica Shale located in Belmont County, Ohio. The company also has operations in the Upper Devonian Shale located on Pennsylvania acreage. It had 120 net producing wells in the Marcellus Shale; 4 net producing wells in the Upper Devonian Shale; and 19 net producing wells in the Utica Shale. The company is also involved in the gathering and compression of natural gas, oil, and NGL; and the provision of water services to support well completion activities. Rice Energy Inc. was founded in 2008 and is based in Canonsburg, Pennsylvania.

FINANCIAL RATIOS  of  Rice Energy (RICE)

Valuation Ratios
P/E Ratio -19.8
Price to Sales 6.8
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 11
Price to Free Cash Flow -13.5
Growth Rates
Sales Growth Rate 55.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -29.3%
Cap. Spend. - 3 Yr. Gr. Rate 13.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 52.3%
Total Debt to Equity 52.3%
Interest Coverage -3
Management Effectiveness
Return On Assets -3.5%
Ret/ On Assets - 3 Yr. Avg. 0.7%
Return On Total Capital -7.6%
Ret/ On T. Cap. - 3 Yr. Avg. -1.7%
Return On Equity -12.9%
Return On Equity - 3 Yr. Avg. -3.2%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 91.8%
Gross Margin - 3 Yr. Avg. 91.3%
EBITDA Margin 10%
EBITDA Margin - 3 Yr. Avg. 56.5%
Operating Margin -8.3%
Oper. Margin - 3 Yr. Avg. -16%
Pre-Tax Margin -50.2%
Pre-Tax Margin - 3 Yr. Avg. -7.2%
Net Profit Margin -34.7%
Net Profit Margin - 3 Yr. Avg. -12.3%
Effective Tax Rate 36.3%
Eff/ Tax Rate - 3 Yr. Avg. 20.4%
Payout Ratio 0%

RICE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RICE stock intrinsic value calculation we used $779 million for the last fiscal year's total revenue generated by Rice Energy. The default revenue input number comes from 2016 income statement of Rice Energy. 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 RICE 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 6.9%, whose default value for RICE is calculated based on our internal credit rating of Rice Energy, 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 Rice Energy.
    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 RICE stock the variable cost ratio is equal to 187.3%.

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 RICE 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 6.7% for Rice Energy.

Corporate tax rate of 27% is the nominal tax rate for Rice Energy. 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 RICE 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 RICE are equal to 398.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Rice Energy 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 RICE 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 - $2908 million for Rice Energy - 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 203.03 million for Rice Energy 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 Rice Energy at the current share price and the inputted number of shares is $5.3 billion.

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COMPANY NEWS

▶ Inventories Spread: Natural Gas Prices Could Make a U-Turn   [Aug-17-17 03:05PM  Market Realist]
▶ EQT defends Rice deal after new letter from activist investor   [Aug-14-17 03:25PM  American City Business Journals]
▶ Inventories Spread: Will Natural Gas Continue Its Gains?   [Aug-11-17 12:35PM  Market Realist]
▶ Natural GasWeighted Stock Investors: Oil Could Matter to You   [Aug-09-17 12:28PM  Market Realist]
▶ US Natural Gas Production Hit a 10-Month High   [Aug-07-17 07:38AM  Market Realist]
▶ Rice CEO talks up EQT deal, channels Timberlake   [Aug-03-17 03:31PM  American City Business Journals]
▶ Rice Confident EQT Deal Will Close   [09:52AM  TheStreet.com]
▶ Rice Energy misses 2Q profit forecasts   [Aug-02-17 11:59PM  Associated Press]
▶ Natural GasWeighted Stocks Returns and Oil Prices   [Aug-01-17 03:06PM  Market Realist]
▶ Bulls Crushed As Oil Crashes Again   [03:00PM  Oilprice.com]
▶ Why EQT Lowered Its 2017 Production Guidance Range   [Jul-31-17 07:41AM  Market Realist]
▶ [$$] Natural-Gas Rally Goes Pfft   [Jul-29-17 12:01AM  Barrons.com]
▶ EQTs Earnings: Revenue Beat Expectations, Earnings Missed   [Jul-28-17 04:42PM  Market Realist]
▶ Inventories Spread: Natural Gas Prices Could Rise   [Jul-27-17 01:10PM  Market Realist]
▶ Why Oil Rigs Could Hinder Natural Gass Recent Gains   [Jul-20-17 04:31PM  Market Realist]
▶ Antero Resources: Why Its Stock Ignored Natural Gas   [Jul-18-17 01:17PM  Market Realist]
▶ Understanding EQTs Recent Stock Performance   [07:41AM  Market Realist]
▶ Behind EQTs 2017 Production Outlook   [Jul-17-17 06:05PM  Market Realist]
▶ Energy Commodities: How They Impact Energy Stocks   [Jul-12-17 07:39AM  Market Realist]
▶ Does Crude Oil Matter to Natural GasWeighted Stocks?   [Jul-11-17 03:34PM  Market Realist]
▶ Key Energy Industry Updates: July 37, 2017   [08:04AM  Market Realist]
▶ [$$] Jana Takes Roughly 5% Stake in Energy Company EQT   [12:12AM  The Wall Street Journal]
▶ [$$] Jana Takes Roughly 5% Stake in EQT   [12:46PM  The Wall Street Journal]
▶ Chart of the Week: EQT and Rice Energy Merger   [Jun-26-17 01:35PM  Market Realist]
▶ Last Weeks Crucial Energy Industry Updates   [10:21AM  Market Realist]
▶ The Hot Stock: EQT Jumps 8%   [Jun-23-17 05:14PM  Barrons.com]
▶ What Happened in the Stock Market Today   [05:06PM  Motley Fool]
▶ EQT-RICE Deal: How Will Ownership Change?   [07:37AM  Market Realist]
▶ How Stocks Reacted to the EQT-RICE Deal   [Jun-20-17 05:36PM  Market Realist]
▶ Is $40 Oil On The Horizon?   [03:00PM  Oilprice.com]
▶ Energy Stocks And Industry News: Oil, Gas, Solar, Coal   [10:20AM  Investor's Business Daily]
▶ Company News for June 20, 2017   [10:19AM  Zacks]
▶ 7 things to know about the EQT-Rice Energy merger   [10:08AM  American City Business Journals]
▶ Rice Energy and EQT: Cramer's Top Takeaways   [06:34AM  TheStreet.com]
▶ [$$] EQT to Buy Rice Energy for $6.7 Billion   [12:36AM  The Wall Street Journal]
Stock chart of RICE Financial statements of RICE
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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