Intrinsic value of Southwestern Energy - SWN

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$6.61

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$6.61

 
Intrinsic value

$0.47

 
Up/down potential

-93%

 
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 3.2

 

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
  161
  207
  317
  458
  637
  857
  1,123
  1,439
  1,807
  2,229
  2,706
  3,239
  3,828
  4,473
  5,172
  5,924
  6,729
  7,585
  8,490
  9,444
  10,446
  11,496
  12,593
  13,737
  14,928
  16,169
  17,458
  18,799
  20,192
  21,640
Earnings before tax, $m
  -2,672
  -7,571
  -10,729
  -14,867
  -20,095
  -26,550
  -34,356
  -43,614
  -54,407
  -66,794
  -80,813
  -96,481
  -113,798
  -132,749
  -153,308
  -175,443
  -199,117
  -224,295
  -250,941
  -279,027
  -308,528
  -339,429
  -371,722
  -405,410
  -440,504
  -477,026
  -515,005
  -554,483
  -595,510
  -638,143
  -682,451
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
  -7,571
  -10,729
  -14,867
  -20,095
  -26,550
  -34,356
  -43,614
  -54,407
  -66,794
  -80,813
  -96,481
  -113,798
  -132,749
  -153,308
  -175,443
  -199,117
  -224,295
  -250,941
  -279,027
  -308,528
  -339,429
  -371,722
  -405,410
  -440,504
  -477,026
  -515,005
  -554,483
  -595,510
  -638,143
  -682,451

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
  8,258
  11,725
  16,214
  21,883
  28,878
  37,331
  47,351
  59,027
  72,422
  87,575
  104,504
  123,207
  143,669
  165,862
  189,750
  215,294
  242,456
  271,197
  301,487
  333,300
  366,619
  401,437
  437,757
  475,591
  514,962
  555,905
  598,462
  642,688
  688,646
  736,410
Adjusted assets (=assets-cash), $m
  5,653
  8,258
  11,725
  16,214
  21,883
  28,878
  37,331
  47,351
  59,027
  72,422
  87,575
  104,504
  123,207
  143,669
  165,862
  189,750
  215,294
  242,456
  271,197
  301,487
  333,300
  366,619
  401,437
  437,757
  475,591
  514,962
  555,905
  598,462
  642,688
  688,646
  736,410
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
  9,129
  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
  -840
  -1,193
  -1,649
  -2,226
  -2,937
  -3,797
  -4,816
  -6,004
  -7,366
  -8,908
  -10,630
  -12,532
  -14,613
  -16,871
  -19,301
  -21,899
  -24,662
  -27,585
  -30,666
  -33,902
  -37,291
  -40,833
  -44,527
  -48,375
  -52,380
  -56,544
  -60,873
  -65,372
  -70,046
  -74,905
Total debt, $m
  4,653
  5,926
  9,046
  13,087
  18,189
  24,485
  32,092
  41,110
  51,619
  63,674
  77,311
  92,547
  109,380
  127,796
  147,770
  169,269
  192,259
  216,704
  242,571
  269,832
  298,464
  328,451
  359,788
  392,475
  426,526
  461,960
  498,808
  537,110
  576,913
  618,276
  661,263
Total liabilities, $m
  6,159
  7,432
  10,552
  14,593
  19,695
  25,991
  33,598
  42,616
  53,125
  65,180
  78,817
  94,053
  110,886
  129,302
  149,276
  170,775
  193,765
  218,210
  244,077
  271,338
  299,970
  329,957
  361,294
  393,981
  428,032
  463,466
  500,314
  538,616
  578,419
  619,782
  662,769
Total equity, $m
  917
  826
  1,172
  1,621
  2,188
  2,888
  3,733
  4,735
  5,903
  7,242
  8,757
  10,450
  12,321
  14,367
  16,586
  18,975
  21,529
  24,246
  27,120
  30,149
  33,330
  36,662
  40,144
  43,776
  47,559
  51,496
  55,590
  59,846
  64,269
  68,865
  73,641
Total liabilities and equity, $m
  7,076
  8,258
  11,724
  16,214
  21,883
  28,879
  37,331
  47,351
  59,028
  72,422
  87,574
  104,503
  123,207
  143,669
  165,862
  189,750
  215,294
  242,456
  271,197
  301,487
  333,300
  366,619
  401,438
  437,757
  475,591
  514,962
  555,904
  598,462
  642,688
  688,647
  736,410
Debt-to-equity ratio
  5.074
  7.180
  7.720
  8.070
  8.310
  8.480
  8.600
  8.680
  8.740
  8.790
  8.830
  8.860
  8.880
  8.900
  8.910
  8.920
  8.930
  8.940
  8.940
  8.950
  8.950
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
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
  -7,571
  -10,729
  -14,867
  -20,095
  -26,550
  -34,356
  -43,614
  -54,407
  -66,794
  -80,813
  -96,481
  -113,798
  -132,749
  -153,308
  -175,443
  -199,117
  -224,295
  -250,941
  -279,027
  -308,528
  -339,429
  -371,722
  -405,410
  -440,504
  -477,026
  -515,005
  -554,483
  -595,510
  -638,143
  -682,451
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
  -6,933
  -9,822
  -13,613
  -18,403
  -24,318
  -31,470
  -39,953
  -49,843
  -61,195
  -74,043
  -88,402
  -104,273
  -121,642
  -140,485
  -160,773
  -182,473
  -205,551
  -229,975
  -255,719
  -282,761
  -311,086
  -340,688
  -371,568
  -403,737
  -437,215
  -472,029
  -508,217
  -545,824
  -584,905
  -625,520
Change in working capital, $m
  -99
  -265
  -353
  -457
  -577
  -712
  -860
  -1,019
  -1,188
  -1,362
  -1,541
  -1,722
  -1,902
  -2,081
  -2,257
  -2,430
  -2,598
  -2,763
  -2,923
  -3,081
  -3,236
  -3,389
  -3,542
  -3,694
  -3,848
  -4,005
  -4,164
  -4,329
  -4,498
  -4,675
  -4,858
Cash from operations, $m
  498
  -7,962
  -9,470
  -13,156
  -17,826
  -23,606
  -30,610
  -38,934
  -48,656
  -59,833
  -72,501
  -86,680
  -102,371
  -119,561
  -138,228
  -158,343
  -179,875
  -202,788
  -227,052
  -252,638
  -279,525
  -307,697
  -337,146
  -367,874
  -399,889
  -433,210
  -467,864
  -503,888
  -541,326
  -580,230
  -620,662
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
  -11,279
  -13,941
  -19,026
  -25,347
  -33,031
  -42,187
  -52,897
  -65,224
  -79,204
  -94,852
  -112,166
  -131,127
  -151,707
  -173,869
  -197,575
  -222,784
  -249,459
  -277,570
  -307,090
  -338,002
  -370,299
  -403,981
  -439,060
  -475,557
  -513,503
  -552,938
  -593,912
  -636,485
  -680,723
  -726,704
Issuance/(repayment) of debt, $m
  -121
  1,314
  3,121
  4,041
  5,102
  6,296
  7,607
  9,018
  10,508
  12,055
  13,638
  15,236
  16,833
  18,416
  19,973
  21,499
  22,990
  24,445
  25,867
  27,261
  28,632
  29,987
  31,336
  32,688
  34,050
  35,434
  36,848
  38,302
  39,803
  41,363
  42,987
Issuance/(repurchase) of shares, $m
  1,247
  9,874
  11,167
  15,434
  20,812
  27,435
  35,425
  44,881
  55,883
  68,488
  82,730
  98,623
  116,164
  135,337
  156,115
  178,464
  202,348
  227,730
  254,577
  282,858
  312,552
  343,644
  376,127
  410,004
  445,290
  482,006
  520,184
  559,866
  601,104
  643,957
  688,493
Cash from financing (excl. dividends), $m  
  1,099
  11,188
  14,288
  19,475
  25,914
  33,731
  43,032
  53,899
  66,391
  80,543
  96,368
  113,859
  132,997
  153,753
  176,088
  199,963
  225,338
  252,175
  280,444
  310,119
  341,184
  373,631
  407,463
  442,692
  479,340
  517,440
  557,032
  598,168
  640,907
  685,320
  731,480
Total cash flow (excl. dividends), $m
  1,435
  -9,965
  -10,820
  -14,985
  -20,245
  -26,736
  -34,579
  -43,879
  -54,716
  -67,149
  -81,214
  -96,930
  -114,294
  -133,291
  -153,896
  -176,075
  -199,794
  -225,014
  -251,703
  -279,829
  -309,371
  -340,312
  -372,645
  -406,372
  -441,507
  -478,069
  -516,090
  -555,611
  -596,681
  -639,361
  -683,716
Retained Cash Flow (-), $m
  1,365
  -1,291
  -347
  -449
  -567
  -700
  -845
  -1,002
  -1,168
  -1,339
  -1,515
  -1,693
  -1,870
  -2,046
  -2,219
  -2,389
  -2,554
  -2,716
  -2,874
  -3,029
  -3,181
  -3,332
  -3,482
  -3,632
  -3,783
  -3,937
  -4,094
  -4,256
  -4,423
  -4,596
  -4,776
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
  10.3
  2.2
  0.5
  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, 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 -1.2
Price to Sales 1.3
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 6.6
Price to Free Cash Flow -34.5
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 -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 488.756 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 $3.2 billion.


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COMPANY NEWS

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▶ What Analysts Are Saying Now about Southwestern Energy   [May-03-17 10:36AM  Market Realist]
▶ Inside Southwestern Energys 1Q17 Revenues   [May-02-17 05:06PM  Market Realist]
▶ Why Southwestern is Soaring   [Apr-28-17 10:41AM  Barrons.com]
▶ Southwestern Energy beats Street 1Q forecasts   [Apr-27-17 05:02PM  Associated Press]
▶ Southwestern Energys 2017 Maintenance Capital Requirement   [Apr-24-17 10:38AM  Market Realist]
▶ Analyzing Southwestern Energys 1Q17 Revenue Expectations   [Apr-21-17 05:05PM  Market Realist]
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▶ Southwestern Energys Target Price Fell Steeply in 1Q17   [Apr-12-17 07:37AM  Market Realist]
▶ Analyzing the Short Interest in Southwestern Energy Stock   [Apr-11-17 05:05PM  Market Realist]
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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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