Intrinsic value of Southwestern Energy - SWN

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$7.44

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$7.44

 
Intrinsic value

$0.46

 
Up/down potential

-94%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of 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 3.7

 

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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  2,436
  2,485
  2,542
  2,607
  2,681
  2,762
  2,851
  2,948
  3,053
  3,166
  3,288
  3,418
  3,557
  3,704
  3,861
  4,028
  4,204
  4,391
  4,589
  4,798
  5,018
  5,251
  5,496
  5,754
  6,027
  6,314
  6,616
  6,934
  7,268
  7,621
  7,991
Variable operating expenses, $m
 
  7,658
  7,834
  8,035
  8,261
  8,512
  8,787
  9,086
  9,410
  9,759
  10,133
  10,534
  10,962
  11,417
  11,901
  12,414
  12,958
  13,534
  14,143
  14,786
  15,466
  16,182
  16,938
  17,735
  18,575
  19,459
  20,390
  21,370
  22,401
  23,486
  24,628
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
  7,658
  7,834
  8,035
  8,261
  8,512
  8,787
  9,086
  9,410
  9,759
  10,133
  10,534
  10,962
  11,417
  11,901
  12,414
  12,958
  13,534
  14,143
  14,786
  15,466
  16,182
  16,938
  17,735
  18,575
  19,459
  20,390
  21,370
  22,401
  23,486
  24,628
Operating income, $m
  -2,246
  -5,173
  -5,292
  -5,428
  -5,581
  -5,750
  -5,936
  -6,138
  -6,357
  -6,592
  -6,845
  -7,116
  -7,405
  -7,712
  -8,039
  -8,386
  -8,754
  -9,143
  -9,554
  -9,989
  -10,448
  -10,932
  -11,443
  -11,981
  -12,548
  -13,145
  -13,774
  -14,436
  -15,133
  -15,866
  -16,637
EBITDA, $m
  -1,810
  -4,728
  -4,836
  -4,961
  -5,100
  -5,255
  -5,424
  -5,609
  -5,809
  -6,024
  -6,256
  -6,503
  -6,767
  -7,048
  -7,347
  -7,664
  -7,999
  -8,355
  -8,731
  -9,128
  -9,547
  -9,990
  -10,457
  -10,949
  -11,467
  -12,013
  -12,588
  -13,193
  -13,829
  -14,499
  -15,203
Interest expense (income), $m
  75
  161
  129
  133
  138
  143
  149
  156
  163
  170
  179
  188
  197
  207
  218
  229
  242
  255
  268
  283
  298
  314
  331
  349
  368
  388
  409
  431
  454
  479
  504
Earnings before tax, $m
  -2,672
  -5,335
  -5,421
  -5,561
  -5,719
  -5,893
  -6,085
  -6,294
  -6,519
  -6,763
  -7,024
  -7,304
  -7,602
  -7,920
  -8,257
  -8,616
  -8,995
  -9,397
  -9,822
  -10,271
  -10,745
  -11,246
  -11,774
  -12,330
  -12,916
  -13,533
  -14,183
  -14,867
  -15,587
  -16,344
  -17,141
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
  -5,335
  -5,421
  -5,561
  -5,719
  -5,893
  -6,085
  -6,294
  -6,519
  -6,763
  -7,024
  -7,304
  -7,602
  -7,920
  -8,257
  -8,616
  -8,995
  -9,397
  -9,822
  -10,271
  -10,745
  -11,246
  -11,774
  -12,330
  -12,916
  -13,533
  -14,183
  -14,867
  -15,587
  -16,344
  -17,141

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
  5,765
  5,898
  6,049
  6,219
  6,408
  6,615
  6,840
  7,084
  7,347
  7,629
  7,930
  8,252
  8,595
  8,959
  9,345
  9,755
  10,188
  10,647
  11,131
  11,643
  12,182
  12,752
  13,351
  13,984
  14,649
  15,350
  16,088
  16,864
  17,681
  18,540
Adjusted assets (=assets-cash), $m
  5,653
  5,765
  5,898
  6,049
  6,219
  6,408
  6,615
  6,840
  7,084
  7,347
  7,629
  7,930
  8,252
  8,595
  8,959
  9,345
  9,755
  10,188
  10,647
  11,131
  11,643
  12,182
  12,752
  13,351
  13,984
  14,649
  15,350
  16,088
  16,864
  17,681
  18,540
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
  6,373
  6,520
  6,687
  6,876
  7,084
  7,313
  7,562
  7,831
  8,122
  8,433
  8,767
  9,123
  9,502
  9,904
  10,331
  10,784
  11,263
  11,770
  12,306
  12,871
  13,468
  14,097
  14,760
  15,459
  16,195
  16,970
  17,785
  18,644
  19,547
  20,496
Working capital, $m
  808
  -586
  -600
  -615
  -633
  -652
  -673
  -696
  -721
  -747
  -776
  -807
  -839
  -874
  -911
  -951
  -992
  -1,036
  -1,083
  -1,132
  -1,184
  -1,239
  -1,297
  -1,358
  -1,422
  -1,490
  -1,561
  -1,636
  -1,715
  -1,798
  -1,886
Total debt, $m
  4,653
  3,683
  3,802
  3,938
  4,091
  4,261
  4,447
  4,650
  4,870
  5,106
  5,360
  5,631
  5,921
  6,229
  6,557
  6,905
  7,273
  7,664
  8,076
  8,512
  8,972
  9,458
  9,970
  10,510
  11,079
  11,678
  12,309
  12,973
  13,672
  14,407
  15,180
Total liabilities, $m
  6,159
  5,189
  5,308
  5,444
  5,597
  5,767
  5,953
  6,156
  6,376
  6,612
  6,866
  7,137
  7,427
  7,735
  8,063
  8,411
  8,779
  9,170
  9,582
  10,018
  10,478
  10,964
  11,476
  12,016
  12,585
  13,184
  13,815
  14,479
  15,178
  15,913
  16,686
Total equity, $m
  917
  577
  590
  605
  622
  641
  661
  684
  708
  735
  763
  793
  825
  859
  896
  935
  975
  1,019
  1,065
  1,113
  1,164
  1,218
  1,275
  1,335
  1,398
  1,465
  1,535
  1,609
  1,686
  1,768
  1,854
Total liabilities and equity, $m
  7,076
  5,766
  5,898
  6,049
  6,219
  6,408
  6,614
  6,840
  7,084
  7,347
  7,629
  7,930
  8,252
  8,594
  8,959
  9,346
  9,754
  10,189
  10,647
  11,131
  11,642
  12,182
  12,751
  13,351
  13,983
  14,649
  15,350
  16,088
  16,864
  17,681
  18,540
Debt-to-equity ratio
  5.074
  6.390
  6.450
  6.510
  6.580
  6.650
  6.720
  6.800
  6.870
  6.950
  7.030
  7.100
  7.170
  7.250
  7.320
  7.390
  7.460
  7.520
  7.590
  7.650
  7.710
  7.760
  7.820
  7.870
  7.920
  7.970
  8.020
  8.060
  8.110
  8.150
  8.190
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
  -5,335
  -5,421
  -5,561
  -5,719
  -5,893
  -6,085
  -6,294
  -6,519
  -6,763
  -7,024
  -7,304
  -7,602
  -7,920
  -8,257
  -8,616
  -8,995
  -9,397
  -9,822
  -10,271
  -10,745
  -11,246
  -11,774
  -12,330
  -12,916
  -13,533
  -14,183
  -14,867
  -15,587
  -16,344
  -17,141
Depreciation, amort., depletion, $m
  436
  446
  456
  468
  481
  495
  511
  529
  548
  568
  590
  613
  638
  664
  693
  722
  754
  788
  823
  861
  900
  942
  986
  1,032
  1,081
  1,133
  1,187
  1,244
  1,304
  1,367
  1,433
Funds from operations, $m
  399
  -4,889
  -4,965
  -5,094
  -5,238
  -5,398
  -5,573
  -5,765
  -5,972
  -6,195
  -6,434
  -6,691
  -6,964
  -7,255
  -7,565
  -7,893
  -8,241
  -8,609
  -8,999
  -9,411
  -9,845
  -10,304
  -10,788
  -11,298
  -11,835
  -12,401
  -12,996
  -13,623
  -14,283
  -14,978
  -15,708
Change in working capital, $m
  -99
  -11
  -13
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -87
Cash from operations, $m
  498
  -6,171
  -4,952
  -5,078
  -5,221
  -5,379
  -5,552
  -5,742
  -5,947
  -6,168
  -6,406
  -6,660
  -6,931
  -7,220
  -7,528
  -7,854
  -8,199
  -8,565
  -8,952
  -9,361
  -9,793
  -10,249
  -10,730
  -11,237
  -11,771
  -12,333
  -12,925
  -13,548
  -14,204
  -14,894
  -15,620
Maintenance CAPEX, $m
  0
  -437
  -446
  -456
  -468
  -481
  -495
  -511
  -529
  -548
  -568
  -590
  -613
  -638
  -664
  -693
  -722
  -754
  -788
  -823
  -861
  -900
  -942
  -986
  -1,032
  -1,081
  -1,133
  -1,187
  -1,244
  -1,304
  -1,367
New CAPEX, $m
  -593
  -124
  -147
  -168
  -188
  -208
  -229
  -249
  -270
  -290
  -312
  -333
  -356
  -379
  -403
  -427
  -453
  -479
  -507
  -536
  -565
  -597
  -629
  -663
  -699
  -736
  -775
  -816
  -858
  -903
  -950
Cash from investing activities, $m
  -162
  -561
  -593
  -624
  -656
  -689
  -724
  -760
  -799
  -838
  -880
  -923
  -969
  -1,017
  -1,067
  -1,120
  -1,175
  -1,233
  -1,295
  -1,359
  -1,426
  -1,497
  -1,571
  -1,649
  -1,731
  -1,817
  -1,908
  -2,003
  -2,102
  -2,207
  -2,317
Free cash flow, $m
  336
  -6,733
  -5,544
  -5,702
  -5,876
  -6,068
  -6,277
  -6,502
  -6,745
  -7,006
  -7,285
  -7,583
  -7,900
  -8,237
  -8,595
  -8,974
  -9,375
  -9,799
  -10,247
  -10,720
  -11,219
  -11,746
  -12,301
  -12,886
  -13,501
  -14,150
  -14,832
  -15,551
  -16,306
  -17,101
  -17,937
Issuance/(repayment) of debt, $m
  -121
  -929
  119
  136
  153
  170
  186
  203
  219
  236
  254
  271
  290
  308
  328
  348
  369
  390
  413
  436
  460
  486
  512
  540
  569
  599
  631
  664
  699
  735
  773
Issuance/(repurchase) of shares, $m
  1,247
  7,322
  5,438
  5,580
  5,740
  5,917
  6,111
  6,322
  6,550
  6,796
  7,060
  7,342
  7,643
  7,963
  8,303
  8,664
  9,047
  9,452
  9,880
  10,333
  10,810
  11,314
  11,846
  12,406
  12,996
  13,617
  14,272
  14,961
  15,685
  16,448
  17,250
Cash from financing (excl. dividends), $m  
  1,099
  6,393
  5,557
  5,716
  5,893
  6,087
  6,297
  6,525
  6,769
  7,032
  7,314
  7,613
  7,933
  8,271
  8,631
  9,012
  9,416
  9,842
  10,293
  10,769
  11,270
  11,800
  12,358
  12,946
  13,565
  14,216
  14,903
  15,625
  16,384
  17,183
  18,023
Total cash flow (excl. dividends), $m
  1,435
  -7,662
  -5,425
  -5,565
  -5,723
  -5,898
  -6,090
  -6,299
  -6,526
  -6,770
  -7,032
  -7,312
  -7,611
  -7,929
  -8,267
  -8,626
  -9,006
  -9,409
  -9,834
  -10,284
  -10,759
  -11,260
  -11,789
  -12,346
  -12,933
  -13,551
  -14,202
  -14,887
  -15,608
  -16,366
  -17,164
Retained Cash Flow (-), $m
  1,365
  -1,042
  -13
  -15
  -17
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -86
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
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Discount rate, %
 
  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
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  15.1
  4.6
  1.4
  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

Southwestern Energy Company, an independent natural gas and oil company, engages in the exploration, development, and production of natural gas and oil in the United States. It operates through two segments, Exploration and Production, and Midstream Services. The company focuses on the Marcellus Shale, an unconventional natural gas reservoir covering approximately 245,805 net acres in Northeast Appalachia; Marcellus, Utica, and Upper Devonian Shales covering approximately 321,563 net acres in Southwest Appalachia; and the Fayetteville Shale, an unconventional gas reservoir covering approximately 918,535 net acres in Arkansas. It also engages in the exploration and production activities in Colorado and Louisiana. In addition, the company is involved in gathering, marketing, and transporting natural gas, oil, and natural gas liquids. As of December 31, 2016, it had a pipeline of 2,045 miles in Arkansas and 16 miles in Louisiana in its gathering systems. The company’s estimated proved natural gas, oil, and natural gas liquids reserves comprise 5,253 billion cubic feet of natural gas equivalent (Bcfe); and 77 Bcfe of proved undeveloped reserves. Southwestern Energy Company was founded in 1929 and is based in Spring, Texas.

FINANCIAL RATIOS  of  Southwestern Energy (SWN)

Valuation Ratios
P/E Ratio -1.4
Price to Sales 1.5
Price to Book 4
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow -38.8
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 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 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 503.06 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 $3.7 billion.


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COMPANY NEWS

▶ Analyzing Southwestern Energys 1Q17 Revenue Expectations   [Apr-21-17 05:05PM  Market Realist]
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Stock chart of SWN 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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