Intrinsic value of Southwestern Energy - SWN

Previous Close

$6.45

  Intrinsic Value

$0.45

stock screener

  Rating & Target

str. sell

-93%

Previous close

$6.45

 
Intrinsic value

$0.45

 
Up/down potential

-93%

 
Rating

str. sell

We calculate the intrinsic value of SWN 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 3.3

 

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, %
  -22.25
  55.40
  50.36
  45.82
  41.74
  38.07
  34.76
  31.78
  29.11
  26.70
  24.53
  22.57
  20.82
  19.23
  17.81
  16.53
  15.38
  14.34
  13.41
  12.56
  11.81
  11.13
  10.51
  9.96
  9.47
  9.02
  8.62
  8.26
  7.93
  7.64
  7.37
Revenue, $m
  2,436
  3,786
  5,692
  8,300
  11,765
  16,243
  21,890
  28,847
  37,244
  47,186
  58,759
  72,023
  87,015
  103,752
  122,231
  142,436
  164,339
  187,903
  213,092
  239,867
  268,191
  298,034
  329,371
  362,188
  396,476
  432,239
  469,490
  508,253
  548,561
  590,458
  633,998
Variable operating expenses, $m
 
  11,667
  17,543
  25,581
  36,259
  50,062
  67,464
  88,908
  114,785
  145,428
  181,095
  221,975
  268,181
  319,764
  376,717
  438,988
  506,491
  579,118
  656,751
  739,270
  826,565
  918,541
  1,015,123
  1,116,262
  1,221,938
  1,332,159
  1,446,967
  1,566,435
  1,690,664
  1,819,792
  1,953,982
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
  4,682
  11,667
  17,543
  25,581
  36,259
  50,062
  67,464
  88,908
  114,785
  145,428
  181,095
  221,975
  268,181
  319,764
  376,717
  438,988
  506,491
  579,118
  656,751
  739,270
  826,565
  918,541
  1,015,123
  1,116,262
  1,221,938
  1,332,159
  1,446,967
  1,566,435
  1,690,664
  1,819,792
  1,953,982
Operating income, $m
  -2,246
  -7,882
  -11,851
  -17,281
  -24,494
  -33,819
  -45,575
  -60,060
  -77,541
  -98,242
  -122,336
  -149,952
  -181,166
  -216,012
  -254,486
  -296,552
  -342,153
  -391,215
  -443,658
  -499,403
  -558,374
  -620,507
  -685,751
  -754,074
  -825,462
  -899,921
  -977,478
  -1,058,182
  -1,142,104
  -1,229,334
  -1,319,984
EBITDA, $m
  -1,810
  -7,202
  -10,830
  -15,792
  -22,384
  -30,905
  -41,648
  -54,886
  -70,861
  -89,778
  -111,797
  -137,033
  -165,558
  -197,402
  -232,561
  -271,003
  -312,675
  -357,510
  -405,436
  -456,378
  -510,268
  -567,048
  -626,672
  -689,109
  -754,346
  -822,390
  -893,265
  -967,016
  -1,043,708
  -1,123,423
  -1,206,263
Interest expense (income), $m
  75
  161
  224
  363
  554
  807
  1,134
  1,547
  2,056
  2,669
  3,396
  4,242
  5,211
  6,307
  7,530
  8,881
  10,357
  11,958
  13,680
  15,521
  17,478
  19,548
  21,729
  24,020
  26,418
  28,924
  31,538
  34,260
  37,093
  40,039
  43,101
Earnings before tax, $m
  -2,672
  -8,043
  -12,075
  -17,644
  -25,048
  -34,626
  -46,709
  -61,607
  -79,597
  -100,911
  -125,732
  -154,193
  -186,377
  -222,319
  -262,016
  -305,433
  -352,510
  -403,173
  -457,339
  -514,924
  -575,852
  -640,055
  -707,481
  -778,094
  -851,880
  -928,845
  -1,009,015
  -1,092,442
  -1,179,197
  -1,269,373
  -1,363,085
Tax expense, $m
  -29
  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
  -2,643
  -8,043
  -12,075
  -17,644
  -25,048
  -34,626
  -46,709
  -61,607
  -79,597
  -100,911
  -125,732
  -154,193
  -186,377
  -222,319
  -262,016
  -305,433
  -352,510
  -403,173
  -457,339
  -514,924
  -575,852
  -640,055
  -707,481
  -778,094
  -851,880
  -928,845
  -1,009,015
  -1,092,442
  -1,179,197
  -1,269,373
  -1,363,085

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,423
  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
  7,076
  8,783
  13,206
  19,258
  27,297
  37,688
  50,788
  66,931
  86,412
  109,481
  136,332
  167,107
  201,892
  240,724
  283,600
  330,478
  381,296
  435,971
  494,414
  556,536
  622,253
  691,494
  764,203
  840,342
  919,897
  1,002,874
  1,089,303
  1,179,240
  1,272,763
  1,369,972
  1,470,993
Adjusted assets (=assets-cash), $m
  5,653
  8,783
  13,206
  19,258
  27,297
  37,688
  50,788
  66,931
  86,412
  109,481
  136,332
  167,107
  201,892
  240,724
  283,600
  330,478
  381,296
  435,971
  494,414
  556,536
  622,253
  691,494
  764,203
  840,342
  919,897
  1,002,874
  1,089,303
  1,179,240
  1,272,763
  1,369,972
  1,470,993
Revenue / Adjusted assets
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
  0.431
Average production assets, $m
  6,249
  9,710
  14,600
  21,290
  30,177
  41,664
  56,147
  73,994
  95,530
  121,032
  150,717
  184,739
  223,194
  266,124
  313,524
  365,349
  421,528
  481,972
  546,582
  615,259
  687,910
  764,457
  844,838
  929,011
  1,016,960
  1,108,692
  1,204,241
  1,303,668
  1,407,059
  1,514,525
  1,626,205
Working capital, $m
  808
  -893
  -1,343
  -1,959
  -2,777
  -3,833
  -5,166
  -6,808
  -8,790
  -11,136
  -13,867
  -16,997
  -20,536
  -24,486
  -28,847
  -33,615
  -38,784
  -44,345
  -50,290
  -56,609
  -63,293
  -70,336
  -77,732
  -85,476
  -93,568
  -102,008
  -110,800
  -119,948
  -129,460
  -139,348
  -149,624
Total debt, $m
  4,653
  6,399
  10,380
  15,826
  23,061
  32,413
  44,204
  58,732
  76,265
  97,027
  121,193
  148,890
  180,196
  215,146
  253,734
  295,925
  341,660
  390,868
  443,466
  499,376
  558,522
  620,839
  686,277
  754,802
  826,401
  901,080
  978,867
  1,059,810
  1,143,981
  1,231,469
  1,322,388
Total liabilities, $m
  6,159
  7,905
  11,886
  17,332
  24,567
  33,919
  45,710
  60,238
  77,771
  98,533
  122,699
  150,396
  181,702
  216,652
  255,240
  297,431
  343,166
  392,374
  444,972
  500,882
  560,028
  622,345
  687,783
  756,308
  827,907
  902,586
  980,373
  1,061,316
  1,145,487
  1,232,975
  1,323,894
Total equity, $m
  917
  878
  1,321
  1,926
  2,730
  3,769
  5,079
  6,693
  8,641
  10,948
  13,633
  16,711
  20,189
  24,072
  28,360
  33,048
  38,130
  43,597
  49,441
  55,654
  62,225
  69,149
  76,420
  84,034
  91,990
  100,287
  108,930
  117,924
  127,276
  136,997
  147,099
Total liabilities and equity, $m
  7,076
  8,783
  13,207
  19,258
  27,297
  37,688
  50,789
  66,931
  86,412
  109,481
  136,332
  167,107
  201,891
  240,724
  283,600
  330,479
  381,296
  435,971
  494,413
  556,536
  622,253
  691,494
  764,203
  840,342
  919,897
  1,002,873
  1,089,303
  1,179,240
  1,272,763
  1,369,972
  1,470,993
Debt-to-equity ratio
  5.074
  7.290
  7.860
  8.220
  8.450
  8.600
  8.700
  8.770
  8.830
  8.860
  8.890
  8.910
  8.930
  8.940
  8.950
  8.950
  8.960
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.980
  8.980
  8.990
  8.990
  8.990
  8.990
  8.990
Adjusted equity ratio
  -0.090
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2,643
  -8,043
  -12,075
  -17,644
  -25,048
  -34,626
  -46,709
  -61,607
  -79,597
  -100,911
  -125,732
  -154,193
  -186,377
  -222,319
  -262,016
  -305,433
  -352,510
  -403,173
  -457,339
  -514,924
  -575,852
  -640,055
  -707,481
  -778,094
  -851,880
  -928,845
  -1,009,015
  -1,092,442
  -1,179,197
  -1,269,373
  -1,363,085
Depreciation, amort., depletion, $m
  436
  679
  1,021
  1,489
  2,110
  2,914
  3,926
  5,174
  6,680
  8,464
  10,540
  12,919
  15,608
  18,610
  21,925
  25,549
  29,478
  33,704
  38,223
  43,025
  48,106
  53,459
  59,080
  64,966
  71,116
  77,531
  84,213
  91,166
  98,396
  105,911
  113,721
Funds from operations, $m
  399
  -7,364
  -11,054
  -16,156
  -22,938
  -31,712
  -42,783
  -56,433
  -72,917
  -92,447
  -115,193
  -141,275
  -170,769
  -203,709
  -240,091
  -279,884
  -323,033
  -369,469
  -419,116
  -471,899
  -527,746
  -586,597
  -648,401
  -713,128
  -780,764
  -851,314
  -924,803
  -1,001,277
  -1,080,801
  -1,163,462
  -1,249,364
Change in working capital, $m
  -99
  -318
  -450
  -616
  -818
  -1,057
  -1,333
  -1,642
  -1,982
  -2,346
  -2,731
  -3,130
  -3,538
  -3,950
  -4,361
  -4,768
  -5,169
  -5,561
  -5,945
  -6,319
  -6,685
  -7,043
  -7,396
  -7,745
  -8,092
  -8,440
  -8,791
  -9,148
  -9,513
  -9,888
  -10,275
Cash from operations, $m
  498
  -7,045
  -10,604
  -15,540
  -22,120
  -30,655
  -41,450
  -54,791
  -70,935
  -90,101
  -112,461
  -138,144
  -167,231
  -199,759
  -235,730
  -275,116
  -317,864
  -363,907
  -413,172
  -465,580
  -521,062
  -579,554
  -641,005
  -705,384
  -772,672
  -842,874
  -916,011
  -992,129
  -1,071,289
  -1,153,575
  -1,239,089
Maintenance CAPEX, $m
  0
  -437
  -679
  -1,021
  -1,489
  -2,110
  -2,914
  -3,926
  -5,174
  -6,680
  -8,464
  -10,540
  -12,919
  -15,608
  -18,610
  -21,925
  -25,549
  -29,478
  -33,704
  -38,223
  -43,025
  -48,106
  -53,459
  -59,080
  -64,966
  -71,116
  -77,531
  -84,213
  -91,166
  -98,396
  -105,911
New CAPEX, $m
  -593
  -3,461
  -4,890
  -6,690
  -8,887
  -11,488
  -14,483
  -17,846
  -21,537
  -25,502
  -29,684
  -34,022
  -38,455
  -42,930
  -47,399
  -51,825
  -56,179
  -60,444
  -64,610
  -68,677
  -72,652
  -76,547
  -80,381
  -84,173
  -87,949
  -91,732
  -95,549
  -99,427
  -103,391
  -107,467
  -111,680
Cash from investing activities, $m
  -162
  -3,898
  -5,569
  -7,711
  -10,376
  -13,598
  -17,397
  -21,772
  -26,711
  -32,182
  -38,148
  -44,562
  -51,374
  -58,538
  -66,009
  -73,750
  -81,728
  -89,922
  -98,314
  -106,900
  -115,677
  -124,653
  -133,840
  -143,253
  -152,915
  -162,848
  -173,080
  -183,640
  -194,557
  -205,863
  -217,591
Free cash flow, $m
  336
  -10,943
  -16,173
  -23,251
  -32,496
  -44,253
  -58,847
  -76,564
  -97,646
  -122,283
  -150,610
  -182,706
  -218,605
  -258,297
  -301,740
  -348,866
  -399,592
  -453,829
  -511,486
  -572,480
  -636,739
  -704,206
  -774,845
  -848,637
  -925,587
  -1,005,722
  -1,089,092
  -1,175,768
  -1,265,845
  -1,359,437
  -1,456,680
Issuance/(repayment) of debt, $m
  -121
  1,787
  3,981
  5,447
  7,235
  9,352
  11,790
  14,529
  17,533
  20,761
  24,166
  27,697
  31,306
  34,949
  38,588
  42,191
  45,736
  49,207
  52,599
  55,910
  59,146
  62,317
  65,438
  68,525
  71,599
  74,679
  77,787
  80,943
  84,170
  87,489
  90,918
Issuance/(repurchase) of shares, $m
  1,247
  9,386
  12,517
  18,250
  25,852
  35,665
  48,019
  63,222
  81,545
  103,218
  128,417
  157,271
  189,855
  226,202
  266,304
  310,121
  357,592
  408,640
  463,183
  521,136
  582,424
  646,979
  714,752
  785,708
  859,836
  937,142
  1,017,658
  1,101,436
  1,188,549
  1,279,094
  1,373,187
Cash from financing (excl. dividends), $m  
  1,099
  11,173
  16,498
  23,697
  33,087
  45,017
  59,809
  77,751
  99,078
  123,979
  152,583
  184,968
  221,161
  261,151
  304,892
  352,312
  403,328
  457,847
  515,782
  577,046
  641,570
  709,296
  780,190
  854,233
  931,435
  1,011,821
  1,095,445
  1,182,379
  1,272,719
  1,366,583
  1,464,105
Total cash flow (excl. dividends), $m
  1,435
  230
  325
  445
  591
  764
  963
  1,187
  1,432
  1,696
  1,974
  2,262
  2,557
  2,855
  3,152
  3,446
  3,736
  4,019
  4,296
  4,567
  4,831
  5,090
  5,345
  5,597
  5,848
  6,100
  6,353
  6,611
  6,875
  7,146
  7,426
Retained Cash Flow (-), $m
  1,365
  -9,386
  -12,517
  -18,250
  -25,852
  -35,665
  -48,019
  -63,222
  -81,545
  -103,218
  -128,417
  -157,271
  -189,855
  -226,202
  -266,304
  -310,121
  -357,592
  -408,640
  -463,183
  -521,136
  -582,424
  -646,979
  -714,752
  -785,708
  -859,836
  -937,142
  -1,017,658
  -1,101,436
  -1,188,549
  -1,279,094
  -1,373,187
Prev. year cash balance distribution, $m
 
  1,382
  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
 
  -7,774
  -12,192
  -17,805
  -25,261
  -34,901
  -47,056
  -62,035
  -80,113
  -101,522
  -126,444
  -155,009
  -187,298
  -223,348
  -263,152
  -306,675
  -353,856
  -404,621
  -458,887
  -516,570
  -577,593
  -641,889
  -709,407
  -780,111
  -853,988
  -931,043
  -1,011,305
  -1,094,825
  -1,181,674
  -1,271,948
  -1,365,761
Discount rate, %
 
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.18
  22.24
  23.35
  24.52
  25.74
  27.03
  28.38
  29.80
  31.29
  32.85
  34.50
  36.22
PV of cash for distribution, $m
 
  -7,146
  -10,217
  -13,486
  -17,137
  -20,998
  -24,846
  -28,427
  -31,486
  -33,791
  -35,167
  -35,515
  -34,822
  -33,159
  -30,673
  -27,565
  -24,065
  -20,407
  -16,803
  -13,430
  -10,413
  -7,827
  -5,700
  -4,019
  -2,740
  -1,805
  -1,147
  -703
  -415
  -235
  -128
Current shareholders' claim on cash, %
  100
  50.0
  10.0
  2.1
  0.4
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Southwestern Energy Company is an energy company engaged in natural gas and oil exploration, development and production. The Company operates through two segments: Exploration and Production (E&P) and Midstream Services. Its operations in northeast Pennsylvania are primarily focused on the unconventional natural gas reservoir known as the Marcellus Shale. Through its affiliated midstream subsidiaries, it is engaged in natural gas gathering activities in Arkansas and Louisiana. Its operations are principally focused on the development of unconventional natural gas reservoirs located in Pennsylvania, West Virginia and Arkansas. As of December 31, 2016, its estimated proved natural gas and oil reserves were 5,253 billions of cubic feet equivalent (Bcfe). During the fiscal year ended December 31, 2016, it gathered approximately 600 billion cubic feet (Bcf) of natural gas in the Fayetteville Shale area, including 42 Bcf of natural gas from third-party operated wells.

FINANCIAL RATIOS  of  Southwestern Energy (SWN)

Valuation Ratios
P/E Ratio -1.2
Price to Sales 1.3
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 6.4
Price to Free Cash Flow -33.6
Growth Rates
Sales Growth Rate -22.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -67%
Cap. Spend. - 3 Yr. Gr. Rate -23.4%
Financial Strength
Quick Ratio 35
Current Ratio 0
LT Debt to Equity 502.9%
Total Debt to Equity 507.4%
Interest Coverage -35
Management Effectiveness
Return On Assets -33.9%
Ret/ On Assets - 3 Yr. Avg. -21.7%
Return On Total Capital -42.1%
Ret/ On T. Cap. - 3 Yr. Avg. -26.8%
Return On Equity -165.2%
Return On Equity - 3 Yr. Avg. -91.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 64.5%
Gross Margin - 3 Yr. Avg. 71%
EBITDA Margin -88.7%
EBITDA Margin - 3 Yr. Avg. -67.5%
Operating Margin -92.2%
Oper. Margin - 3 Yr. Avg. -88.8%
Pre-Tax Margin -109.7%
Pre-Tax Margin - 3 Yr. Avg. -94.4%
Net Profit Margin -108.5%
Net Profit Margin - 3 Yr. Avg. -77%
Effective Tax Rate 1.1%
Eff/ Tax Rate - 3 Yr. Avg. 22.6%
Payout Ratio -1%

SWN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SWN stock intrinsic value calculation we used $2436 million for the last fiscal year's total revenue generated by Southwestern Energy. The default revenue input number comes from 2016 income statement of Southwestern 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 SWN stock valuation model: a) initial revenue growth rate of 55.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.8%, whose default value for SWN is calculated based on our internal credit rating of Southwestern 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 Southwestern 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 SWN stock the variable cost ratio is equal to 308.2%.

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 SWN 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 3.5% for Southwestern Energy.

Corporate tax rate of 27% is the nominal tax rate for Southwestern 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 SWN 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 SWN are equal to 256.5%.

Life of production assets of 14.3 years is the average useful life of capital assets used in Southwestern 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 SWN is equal to -23.6%. 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 - $917 million for Southwestern 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 509.294 million for Southwestern 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 Southwestern Energy at the current share price and the inputted number of shares is $3.3 billion.

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COMPANY NEWS

▶ Which Natural-Gas-Weighted Stocks Are Following Oil?   [Nov-14-17 04:15PM  Market Realist]
▶ Should You Buy Southwestern Energy Company (SWN) Now?   [Nov-07-17 04:53PM  Simply Wall St.]
▶ Devon Energy Reported Increased Profits in 3Q17   [Nov-03-17 03:06PM  Market Realist]
▶ Why Oil Could Determine Fate of Natural GasWeighted Stocks   [Oct-31-17 12:45PM  Market Realist]
▶ How Weather Influences Natural Gas Prices   [11:35AM  Market Realist]
▶ Will Marathon Oils Losses Increase in 3Q17?   [07:35AM  Market Realist]
▶ Southwestern Energy misses Street 3Q forecasts   [Oct-26-17 04:39PM  Associated Press]
▶ Which Gas-Weighted Stocks Are Outperforming Their Peers?   [Oct-24-17 01:29PM  Market Realist]
▶ Where ConocoPhillips Stock Could Settle This Week   [Oct-23-17 03:06PM  Market Realist]
▶ Where Natural Gas Prices Stand next to Oil Prices   [Oct-19-17 11:57AM  Market Realist]
▶ How Weather Affects Natural Gas Prices   [09:14AM  Market Realist]
▶ Are Natural GasWeighted Stocks Underperforming Natural Gas?   [Oct-17-17 08:56AM  Market Realist]
▶ Will ConocoPhillips Report Profits Again in 3Q17?   [Oct-13-17 03:17PM  Market Realist]
▶ Natural Gas Prices Dropped during the Week Ended October 6   [Oct-12-17 09:11AM  Market Realist]
▶ Is Oil Steering Natural GasWeighted Stocks?   [07:41AM  Market Realist]
▶ Where Encana Stock Could Settle This Week   [Oct-10-17 04:35PM  Market Realist]
▶ Southwestern Energys Quarterly Production Growth in 3Q17   [Oct-09-17 10:40AM  Market Realist]
▶ Why Oil Above $50 is a Concern for Natural Gas Bulls   [Sep-29-17 07:44AM  Market Realist]
▶ Is US Crude Oil Driving Natural GasWeighted Stocks?   [Sep-26-17 01:21PM  Market Realist]
▶ What W&T Offshores Implied Volatility Says about the Stock   [Sep-22-17 09:07AM  Market Realist]
▶ Rig Count: A Look at Natural Gass Upside   [08:06AM  Market Realist]
▶ Natural Gas above $3: Which Gas-Weighted Stocks Could Gain?   [Sep-20-17 08:07AM  Market Realist]
▶ Whats Moving ConocoPhillips Stock Now?   [Sep-18-17 12:06PM  Market Realist]
▶ What EOG Resources Implied Volatility Says about Its Stock   [Sep-13-17 09:07AM  Market Realist]
▶ Pioneer Natural Resources Free Cash Flow in 2Q17   [Sep-08-17 10:37AM  Market Realist]
▶ Rigs Consolidate, Natural Gas Could Benefit   [01:27PM  Market Realist]
▶ Is Crude Oil Dragging on Natural GasWeighted Stocks?   [Sep-05-17 05:35PM  Market Realist]
▶ Oil Rig Count Effect: Natural Gas Could Rise   [Aug-31-17 01:19PM  Market Realist]
▶ Gas-Weighted Stocks Could Yield More than Natural Gas Prices   [Aug-30-17 01:06PM  Market Realist]
▶ Gas-Weighted Stocks Could Catch Natural Gas   [11:36AM  Market Realist]
Financial statements of SWN
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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