Intrinsic value of Southwestern Energy - SWN

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$5.84

  Intrinsic Value

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  Value-price divergence*

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$5.84

 
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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 2.9

 

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
  46.10
  41.99
  38.29
  34.96
  31.97
  29.27
  26.84
  24.66
  22.69
  20.92
  19.33
  17.90
  16.61
  15.45
  14.40
  13.46
  12.62
  11.85
  11.17
  10.55
  10.00
  9.50
  9.05
  8.64
  8.28
  7.95
  7.66
  7.39
  7.15
  6.94
Revenue, $m
  2,436
  3,559
  5,053
  6,988
  9,432
  12,447
  16,090
  20,408
  25,441
  31,214
  37,745
  45,041
  53,102
  61,921
  71,486
  81,782
  92,792
  104,498
  116,886
  129,941
  143,652
  158,013
  173,020
  188,673
  204,980
  221,949
  239,595
  257,937
  276,999
  296,807
  317,393
Variable operating expenses, $m
 
  10,969
  15,575
  21,538
  29,069
  38,360
  49,588
  62,899
  78,408
  96,201
  116,329
  138,816
  163,661
  190,842
  220,321
  252,053
  285,985
  322,064
  360,243
  400,478
  442,736
  486,996
  533,246
  581,491
  631,747
  684,046
  738,431
  794,962
  853,709
  914,758
  978,204
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
  10,969
  15,575
  21,538
  29,069
  38,360
  49,588
  62,899
  78,408
  96,201
  116,329
  138,816
  163,661
  190,842
  220,321
  252,053
  285,985
  322,064
  360,243
  400,478
  442,736
  486,996
  533,246
  581,491
  631,747
  684,046
  738,431
  794,962
  853,709
  914,758
  978,204
Operating income, $m
  -2,246
  -7,410
  -10,521
  -14,550
  -19,637
  -25,914
  -33,499
  -42,490
  -52,968
  -64,987
  -78,584
  -93,775
  -110,559
  -128,920
  -148,835
  -170,271
  -193,193
  -217,566
  -243,357
  -270,537
  -299,084
  -328,983
  -360,227
  -392,818
  -426,768
  -462,097
  -498,837
  -537,025
  -576,711
  -617,951
  -660,812
EBITDA, $m
  -1,810
  -6,771
  -9,615
  -13,296
  -17,945
  -23,681
  -30,613
  -38,830
  -48,404
  -59,388
  -71,814
  -85,696
  -101,034
  -117,814
  -136,012
  -155,601
  -176,549
  -198,822
  -222,391
  -247,229
  -273,317
  -300,640
  -329,192
  -358,975
  -390,000
  -422,286
  -455,860
  -490,759
  -527,026
  -564,713
  -603,881
Interest expense (income), $m
  75
  163
  262
  395
  566
  782
  1,049
  1,372
  1,754
  2,199
  2,710
  3,288
  3,934
  4,648
  5,428
  6,275
  7,186
  8,161
  9,197
  10,294
  11,449
  12,663
  13,934
  15,263
  16,648
  18,092
  19,594
  21,156
  22,779
  24,466
  26,220
Earnings before tax, $m
  -2,672
  -7,573
  -10,784
  -14,945
  -20,203
  -26,696
  -34,548
  -43,862
  -54,721
  -67,186
  -81,295
  -97,064
  -114,493
  -133,568
  -154,263
  -176,546
  -200,379
  -225,727
  -252,554
  -280,831
  -310,533
  -341,646
  -374,161
  -408,080
  -443,416
  -480,189
  -518,430
  -558,181
  -599,490
  -642,418
  -687,031
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
  -7,573
  -10,784
  -14,945
  -20,203
  -26,696
  -34,548
  -43,862
  -54,721
  -67,186
  -81,295
  -97,064
  -114,493
  -133,568
  -154,263
  -176,546
  -200,379
  -225,727
  -252,554
  -280,831
  -310,533
  -341,646
  -374,161
  -408,080
  -443,416
  -480,189
  -518,430
  -558,181
  -599,490
  -642,418
  -687,031

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
  10,346
  14,690
  20,315
  27,418
  36,182
  46,772
  59,327
  73,956
  90,738
  109,723
  130,933
  154,367
  180,004
  207,810
  237,739
  269,744
  303,774
  339,785
  377,735
  417,594
  459,340
  502,964
  548,469
  595,871
  645,200
  696,497
  749,817
  805,228
  862,810
  922,653
Adjusted assets (=assets-cash), $m
  5,653
  10,346
  14,690
  20,315
  27,418
  36,182
  46,772
  59,327
  73,956
  90,738
  109,723
  130,933
  154,367
  180,004
  207,810
  237,739
  269,744
  303,774
  339,785
  377,735
  417,594
  459,340
  502,964
  548,469
  595,871
  645,200
  696,497
  749,817
  805,228
  862,810
  922,653
Revenue / Adjusted assets
  0.431
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
  0.344
Average production assets, $m
  6,249
  9,129
  12,962
  17,925
  24,192
  31,926
  41,270
  52,348
  65,256
  80,064
  96,815
  115,530
  136,207
  158,829
  183,363
  209,771
  238,011
  268,038
  299,813
  333,298
  368,468
  405,303
  443,795
  483,947
  525,773
  569,298
  614,561
  661,609
  710,501
  761,309
  814,112
Working capital, $m
  808
  -356
  -505
  -699
  -943
  -1,245
  -1,609
  -2,041
  -2,544
  -3,121
  -3,774
  -4,504
  -5,310
  -6,192
  -7,149
  -8,178
  -9,279
  -10,450
  -11,689
  -12,994
  -14,365
  -15,801
  -17,302
  -18,867
  -20,498
  -22,195
  -23,959
  -25,794
  -27,700
  -29,681
  -31,739
Total debt, $m
  4,653
  7,495
  11,274
  16,168
  22,347
  29,972
  39,186
  50,108
  62,835
  77,436
  93,953
  112,406
  132,793
  155,098
  179,288
  205,327
  233,171
  262,778
  294,107
  327,123
  361,800
  398,119
  436,072
  475,662
  516,902
  559,818
  604,446
  650,835
  699,043
  749,139
  801,202
Total liabilities, $m
  6,159
  9,001
  12,780
  17,674
  23,853
  31,478
  40,692
  51,614
  64,341
  78,942
  95,459
  113,912
  134,299
  156,604
  180,794
  206,833
  234,677
  264,284
  295,613
  328,629
  363,306
  399,625
  437,578
  477,168
  518,408
  561,324
  605,952
  652,341
  700,549
  750,645
  802,708
Total equity, $m
  917
  1,345
  1,910
  2,641
  3,564
  4,704
  6,080
  7,712
  9,614
  11,796
  14,264
  17,021
  20,068
  23,401
  27,015
  30,906
  35,067
  39,491
  44,172
  49,106
  54,287
  59,714
  65,385
  71,301
  77,463
  83,876
  90,545
  97,476
  104,680
  112,165
  119,945
Total liabilities and equity, $m
  7,076
  10,346
  14,690
  20,315
  27,417
  36,182
  46,772
  59,326
  73,955
  90,738
  109,723
  130,933
  154,367
  180,005
  207,809
  237,739
  269,744
  303,775
  339,785
  377,735
  417,593
  459,339
  502,963
  548,469
  595,871
  645,200
  696,497
  749,817
  805,229
  862,810
  922,653
Debt-to-equity ratio
  5.074
  5.570
  5.900
  6.120
  6.270
  6.370
  6.440
  6.500
  6.540
  6.560
  6.590
  6.600
  6.620
  6.630
  6.640
  6.640
  6.650
  6.650
  6.660
  6.660
  6.660
  6.670
  6.670
  6.670
  6.670
  6.670
  6.680
  6.680
  6.680
  6.680
  6.680
Adjusted equity ratio
  -0.090
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2,643
  -7,573
  -10,784
  -14,945
  -20,203
  -26,696
  -34,548
  -43,862
  -54,721
  -67,186
  -81,295
  -97,064
  -114,493
  -133,568
  -154,263
  -176,546
  -200,379
  -225,727
  -252,554
  -280,831
  -310,533
  -341,646
  -374,161
  -408,080
  -443,416
  -480,189
  -518,430
  -558,181
  -599,490
  -642,418
  -687,031
Depreciation, amort., depletion, $m
  436
  638
  906
  1,254
  1,692
  2,233
  2,886
  3,661
  4,563
  5,599
  6,770
  8,079
  9,525
  11,107
  12,823
  14,669
  16,644
  18,744
  20,966
  23,308
  25,767
  28,343
  31,035
  33,842
  36,767
  39,811
  42,976
  46,266
  49,685
  53,238
  56,931
Funds from operations, $m
  399
  -6,934
  -9,877
  -13,691
  -18,511
  -24,463
  -31,662
  -40,201
  -50,158
  -61,588
  -74,524
  -88,985
  -104,968
  -122,461
  -141,441
  -161,876
  -183,735
  -206,983
  -231,588
  -257,523
  -284,766
  -313,303
  -343,126
  -374,238
  -406,649
  -440,378
  -475,454
  -511,914
  -549,805
  -589,179
  -630,100
Change in working capital, $m
  -99
  -112
  -149
  -194
  -244
  -301
  -364
  -432
  -503
  -577
  -653
  -730
  -806
  -882
  -957
  -1,030
  -1,101
  -1,171
  -1,239
  -1,305
  -1,371
  -1,436
  -1,501
  -1,565
  -1,631
  -1,697
  -1,765
  -1,834
  -1,906
  -1,981
  -2,059
Cash from operations, $m
  498
  -6,822
  -9,728
  -13,497
  -18,267
  -24,162
  -31,297
  -39,769
  -49,655
  -61,010
  -73,871
  -88,255
  -104,162
  -121,579
  -140,484
  -160,847
  -182,634
  -205,812
  -230,349
  -256,218
  -283,395
  -311,867
  -341,626
  -372,672
  -405,018
  -438,681
  -473,689
  -510,080
  -547,899
  -587,199
  -628,042
Maintenance CAPEX, $m
  0
  -437
  -638
  -906
  -1,254
  -1,692
  -2,233
  -2,886
  -3,661
  -4,563
  -5,599
  -6,770
  -8,079
  -9,525
  -11,107
  -12,823
  -14,669
  -16,644
  -18,744
  -20,966
  -23,308
  -25,767
  -28,343
  -31,035
  -33,842
  -36,767
  -39,811
  -42,976
  -46,266
  -49,685
  -53,238
New CAPEX, $m
  -593
  -2,880
  -3,833
  -4,963
  -6,267
  -7,733
  -9,344
  -11,078
  -12,908
  -14,808
  -16,752
  -18,715
  -20,677
  -22,621
  -24,534
  -26,409
  -28,240
  -30,027
  -31,774
  -33,486
  -35,170
  -36,835
  -38,492
  -40,152
  -41,826
  -43,526
  -45,262
  -47,048
  -48,893
  -50,808
  -52,803
Cash from investing activities, $m
  -162
  -3,317
  -4,471
  -5,869
  -7,521
  -9,425
  -11,577
  -13,964
  -16,569
  -19,371
  -22,351
  -25,485
  -28,756
  -32,146
  -35,641
  -39,232
  -42,909
  -46,671
  -50,518
  -54,452
  -58,478
  -62,602
  -66,835
  -71,187
  -75,668
  -80,293
  -85,073
  -90,024
  -95,159
  -100,493
  -106,041
Free cash flow, $m
  336
  -10,139
  -14,199
  -19,367
  -25,787
  -33,587
  -42,874
  -53,733
  -66,224
  -80,382
  -96,222
  -113,740
  -132,918
  -153,726
  -176,125
  -200,078
  -225,543
  -252,483
  -280,867
  -310,669
  -341,872
  -374,469
  -408,460
  -443,859
  -480,686
  -518,974
  -558,763
  -600,104
  -643,058
  -687,692
  -734,084
Issuance/(repayment) of debt, $m
  -121
  2,842
  3,779
  4,894
  6,179
  7,625
  9,213
  10,923
  12,727
  14,601
  16,517
  18,453
  20,388
  22,304
  24,191
  26,039
  27,844
  29,607
  31,329
  33,017
  34,677
  36,319
  37,953
  39,590
  41,240
  42,916
  44,628
  46,389
  48,208
  50,096
  52,064
Issuance/(repurchase) of shares, $m
  1,247
  8,001
  11,348
  15,676
  21,126
  27,835
  35,924
  45,494
  56,623
  69,368
  83,763
  99,821
  117,540
  136,901
  157,878
  180,437
  204,540
  230,151
  257,235
  285,764
  315,715
  347,073
  379,832
  413,996
  449,578
  486,602
  525,099
  565,112
  606,694
  649,903
  694,811
Cash from financing (excl. dividends), $m  
  1,099
  10,843
  15,127
  20,570
  27,305
  35,460
  45,137
  56,417
  69,350
  83,969
  100,280
  118,274
  137,928
  159,205
  182,069
  206,476
  232,384
  259,758
  288,564
  318,781
  350,392
  383,392
  417,785
  453,586
  490,818
  529,518
  569,727
  611,501
  654,902
  699,999
  746,875
Total cash flow (excl. dividends), $m
  1,435
  704
  929
  1,202
  1,518
  1,873
  2,264
  2,683
  3,127
  3,587
  4,058
  4,534
  5,009
  5,480
  5,943
  6,397
  6,841
  7,274
  7,697
  8,112
  8,520
  8,923
  9,324
  9,726
  10,132
  10,544
  10,964
  11,397
  11,844
  12,308
  12,791
Retained Cash Flow (-), $m
  1,365
  -8,001
  -11,348
  -15,676
  -21,126
  -27,835
  -35,924
  -45,494
  -56,623
  -69,368
  -83,763
  -99,821
  -117,540
  -136,901
  -157,878
  -180,437
  -204,540
  -230,151
  -257,235
  -285,764
  -315,715
  -347,073
  -379,832
  -413,996
  -449,578
  -486,602
  -525,099
  -565,112
  -606,694
  -649,903
  -694,811
Prev. year cash balance 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
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
 
  -7,297
  -10,420
  -14,473
  -19,608
  -25,962
  -33,661
  -42,811
  -53,496
  -65,781
  -79,705
  -95,288
  -112,531
  -131,421
  -151,935
  -174,039
  -197,699
  -222,877
  -249,538
  -277,653
  -307,195
  -338,150
  -370,508
  -404,270
  -439,446
  -476,058
  -514,134
  -553,715
  -594,850
  -637,596
  -682,020
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
 
  -6,707
  -8,732
  -10,963
  -13,302
  -15,620
  -17,773
  -19,618
  -21,025
  -21,895
  -22,168
  -21,832
  -20,921
  -19,511
  -17,709
  -15,643
  -13,445
  -11,241
  -9,137
  -7,218
  -5,538
  -4,123
  -2,977
  -2,083
  -1,410
  -923
  -583
  -356
  -209
  -118
  -64
Current shareholders' claim on cash, %
  100
  26.4
  7.1
  2.0
  0.6
  0.2
  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, 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 -1.1
Price to Sales 1.2
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 5.8
Price to Free Cash Flow -30.4
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 46.1% 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 -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 - $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 490.933 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 $2.9 billion.


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Stock chart of SWN Financial statements of SWN Annual reports 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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