Intrinsic value of Tesoro Logistics - TLLP

Previous Close

$52.13

  Intrinsic Value

$163.48

stock screener

  Rating & Target

str. buy

+214%

  Value-price divergence*

+125%

Previous close

$52.13

 
Intrinsic value

$163.48

 
Up/down potential

+214%

 
Rating

str. buy

 
Value-price divergence*

+125%

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

We calculate the intrinsic value of TLLP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 5.7

 

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, %
  9.71
  40.00
  36.50
  33.35
  30.52
  27.96
  25.67
  23.60
  21.74
  20.07
  18.56
  17.20
  15.98
  14.89
  13.90
  13.01
  12.21
  11.49
  10.84
  10.25
  9.73
  9.26
  8.83
  8.45
  8.10
  7.79
  7.51
  7.26
  7.04
  6.83
  6.65
Revenue, $m
  1,220
  1,708
  2,331
  3,109
  4,058
  5,192
  6,525
  8,065
  9,818
  11,788
  13,976
  16,381
  18,999
  21,827
  24,860
  28,094
  31,523
  35,144
  38,952
  42,946
  47,124
  51,485
  56,031
  60,764
  65,687
  70,805
  76,125
  81,652
  87,397
  93,367
  99,575
Variable operating expenses, $m
 
  217
  292
  386
  500
  637
  797
  983
  1,194
  1,431
  1,695
  1,972
  2,288
  2,628
  2,993
  3,383
  3,796
  4,232
  4,690
  5,171
  5,674
  6,199
  6,747
  7,317
  7,909
  8,526
  9,166
  9,832
  10,523
  11,242
  11,990
Fixed operating expenses, $m
 
  604
  619
  634
  650
  666
  683
  700
  718
  736
  754
  773
  792
  812
  832
  853
  874
  896
  919
  942
  965
  989
  1,014
  1,039
  1,065
  1,092
  1,119
  1,147
  1,176
  1,205
  1,235
Total operating expenses, $m
  733
  821
  911
  1,020
  1,150
  1,303
  1,480
  1,683
  1,912
  2,167
  2,449
  2,745
  3,080
  3,440
  3,825
  4,236
  4,670
  5,128
  5,609
  6,113
  6,639
  7,188
  7,761
  8,356
  8,974
  9,618
  10,285
  10,979
  11,699
  12,447
  13,225
Operating income, $m
  487
  887
  1,420
  2,089
  2,907
  3,889
  5,045
  6,382
  7,907
  9,622
  11,528
  13,636
  15,919
  18,387
  21,035
  23,858
  26,853
  30,016
  33,343
  36,833
  40,484
  44,297
  48,270
  52,408
  56,712
  61,188
  65,839
  70,673
  75,697
  80,920
  86,350
EBITDA, $m
  677
  1,157
  1,785
  2,571
  3,533
  4,687
  6,044
  7,614
  9,404
  11,418
  13,655
  16,115
  18,795
  21,690
  24,797
  28,110
  31,624
  35,335
  39,239
  43,333
  47,617
  52,089
  56,751
  61,604
  66,654
  71,904
  77,360
  83,031
  88,925
  95,051
  101,420
Interest expense (income), $m
  165
  195
  277
  383
  515
  676
  869
  1,095
  1,357
  1,654
  1,989
  2,360
  2,768
  3,213
  3,693
  4,208
  4,757
  5,339
  5,954
  6,601
  7,279
  7,988
  8,729
  9,500
  10,304
  11,140
  12,009
  12,912
  13,850
  14,826
  15,839
Earnings before tax, $m
  315
  692
  1,143
  1,705
  2,392
  3,213
  4,176
  5,287
  6,550
  7,968
  9,539
  11,275
  13,151
  15,174
  17,342
  19,650
  22,096
  24,676
  27,389
  30,233
  33,206
  36,309
  39,542
  42,908
  46,408
  50,048
  53,830
  57,761
  61,847
  66,094
  70,510
Tax expense, $m
  0
  187
  309
  460
  646
  867
  1,127
  1,427
  1,769
  2,151
  2,576
  3,044
  3,551
  4,097
  4,682
  5,305
  5,966
  6,663
  7,395
  8,163
  8,966
  9,803
  10,676
  11,585
  12,530
  13,513
  14,534
  15,596
  16,699
  17,845
  19,038
Net income, $m
  315
  505
  834
  1,245
  1,746
  2,345
  3,048
  3,859
  4,782
  5,816
  6,964
  8,231
  9,600
  11,077
  12,659
  14,344
  16,130
  18,014
  19,994
  22,070
  24,240
  26,505
  28,866
  31,323
  33,878
  36,535
  39,296
  42,166
  45,148
  48,249
  51,473

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  688
  0
  0
  0
  0
  0
  0
  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
  5,860
  7,459
  10,181
  13,576
  17,719
  22,674
  28,494
  35,218
  42,875
  51,478
  61,032
  71,532
  82,965
  95,315
  108,560
  122,681
  137,655
  153,466
  170,097
  187,537
  205,781
  224,826
  244,678
  265,345
  286,843
  309,193
  332,422
  356,560
  381,645
  407,718
  434,826
Adjusted assets (=assets-cash), $m
  5,172
  7,459
  10,181
  13,576
  17,719
  22,674
  28,494
  35,218
  42,875
  51,478
  61,032
  71,532
  82,965
  95,315
  108,560
  122,681
  137,655
  153,466
  170,097
  187,537
  205,781
  224,826
  244,678
  265,345
  286,843
  309,193
  332,422
  356,560
  381,645
  407,718
  434,826
Revenue / Adjusted assets
  0.236
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
  0.229
Average production assets, $m
  4,524
  6,333
  8,645
  11,528
  15,046
  19,253
  24,195
  29,905
  36,406
  43,712
  51,824
  60,740
  70,449
  80,935
  92,182
  104,172
  116,887
  130,313
  144,435
  159,244
  174,735
  190,907
  207,764
  225,313
  243,568
  262,546
  282,270
  302,767
  324,067
  346,207
  369,224
Working capital, $m
  726
  53
  72
  96
  126
  161
  202
  250
  304
  365
  433
  508
  589
  677
  771
  871
  977
  1,089
  1,208
  1,331
  1,461
  1,596
  1,737
  1,884
  2,036
  2,195
  2,360
  2,531
  2,709
  2,894
  3,087
Total debt, $m
  4,053
  5,776
  7,982
  10,732
  14,087
  18,101
  22,815
  28,262
  34,464
  41,432
  49,171
  57,676
  66,937
  76,940
  87,669
  99,106
  111,236
  124,042
  137,513
  151,640
  166,417
  181,844
  197,924
  214,664
  232,078
  250,182
  268,997
  288,549
  308,868
  329,987
  351,944
Total liabilities, $m
  4,318
  6,041
  8,247
  10,997
  14,352
  18,366
  23,080
  28,527
  34,729
  41,697
  49,436
  57,941
  67,202
  77,205
  87,934
  99,371
  111,501
  124,307
  137,778
  151,905
  166,682
  182,109
  198,189
  214,929
  232,343
  250,447
  269,262
  288,814
  309,133
  330,252
  352,209
Total equity, $m
  1,542
  1,417
  1,934
  2,579
  3,367
  4,308
  5,414
  6,691
  8,146
  9,781
  11,596
  13,591
  15,763
  18,110
  20,626
  23,309
  26,154
  29,158
  32,318
  35,632
  39,098
  42,717
  46,489
  50,416
  54,500
  58,747
  63,160
  67,746
  72,513
  77,466
  82,617
Total liabilities and equity, $m
  5,860
  7,458
  10,181
  13,576
  17,719
  22,674
  28,494
  35,218
  42,875
  51,478
  61,032
  71,532
  82,965
  95,315
  108,560
  122,680
  137,655
  153,465
  170,096
  187,537
  205,780
  224,826
  244,678
  265,345
  286,843
  309,194
  332,422
  356,560
  381,646
  407,718
  434,826
Debt-to-equity ratio
  2.628
  4.080
  4.130
  4.160
  4.180
  4.200
  4.210
  4.220
  4.230
  4.240
  4.240
  4.240
  4.250
  4.250
  4.250
  4.250
  4.250
  4.250
  4.250
  4.260
  4.260
  4.260
  4.260
  4.260
  4.260
  4.260
  4.260
  4.260
  4.260
  4.260
  4.260
Adjusted equity ratio
  0.165
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  315
  505
  834
  1,245
  1,746
  2,345
  3,048
  3,859
  4,782
  5,816
  6,964
  8,231
  9,600
  11,077
  12,659
  14,344
  16,130
  18,014
  19,994
  22,070
  24,240
  26,505
  28,866
  31,323
  33,878
  36,535
  39,296
  42,166
  45,148
  48,249
  51,473
Depreciation, amort., depletion, $m
  190
  270
  365
  482
  626
  798
  999
  1,232
  1,498
  1,796
  2,127
  2,479
  2,875
  3,303
  3,763
  4,252
  4,771
  5,319
  5,895
  6,500
  7,132
  7,792
  8,480
  9,196
  9,942
  10,716
  11,521
  12,358
  13,227
  14,131
  15,070
Funds from operations, $m
  454
  776
  1,199
  1,727
  2,372
  3,143
  4,048
  5,092
  6,279
  7,612
  9,091
  10,710
  12,476
  14,380
  16,422
  18,596
  20,901
  23,333
  25,889
  28,570
  31,372
  34,297
  37,346
  40,519
  43,820
  47,251
  50,817
  54,524
  58,376
  62,380
  66,543
Change in working capital, $m
  -44
  15
  19
  24
  29
  35
  41
  48
  54
  61
  68
  75
  81
  88
  94
  100
  106
  112
  118
  124
  130
  135
  141
  147
  153
  159
  165
  171
  178
  185
  192
Cash from operations, $m
  498
  761
  1,180
  1,703
  2,343
  3,108
  4,006
  5,044
  6,225
  7,551
  9,023
  10,636
  12,394
  14,293
  16,328
  18,496
  20,795
  23,220
  25,771
  28,446
  31,243
  34,162
  37,205
  40,372
  43,667
  47,092
  50,653
  54,352
  58,198
  62,195
  66,351
Maintenance CAPEX, $m
  0
  -185
  -259
  -353
  -471
  -614
  -786
  -988
  -1,221
  -1,486
  -1,784
  -2,115
  -2,479
  -2,875
  -3,303
  -3,763
  -4,252
  -4,771
  -5,319
  -5,895
  -6,500
  -7,132
  -7,792
  -8,480
  -9,196
  -9,942
  -10,716
  -11,521
  -12,358
  -13,227
  -14,131
New CAPEX, $m
  -260
  -1,809
  -2,312
  -2,883
  -3,518
  -4,207
  -4,942
  -5,710
  -6,501
  -7,305
  -8,113
  -8,916
  -9,708
  -10,486
  -11,247
  -11,990
  -12,715
  -13,425
  -14,122
  -14,809
  -15,491
  -16,172
  -16,856
  -17,549
  -18,255
  -18,978
  -19,724
  -20,497
  -21,300
  -22,139
  -23,018
Cash from investing activities, $m
  -318
  -1,994
  -2,571
  -3,236
  -3,989
  -4,821
  -5,728
  -6,698
  -7,722
  -8,791
  -9,897
  -11,031
  -12,187
  -13,361
  -14,550
  -15,753
  -16,967
  -18,196
  -19,441
  -20,704
  -21,991
  -23,304
  -24,648
  -26,029
  -27,451
  -28,920
  -30,440
  -32,018
  -33,658
  -35,366
  -37,149
Free cash flow, $m
  180
  -1,233
  -1,391
  -1,533
  -1,646
  -1,714
  -1,721
  -1,654
  -1,497
  -1,240
  -874
  -395
  207
  931
  1,777
  2,744
  3,827
  5,024
  6,331
  7,741
  9,252
  10,858
  12,556
  14,343
  16,216
  18,173
  20,212
  22,334
  24,539
  26,828
  29,202
Issuance/(repayment) of debt, $m
  1,225
  1,723
  2,205
  2,750
  3,356
  4,013
  4,714
  5,447
  6,202
  6,969
  7,739
  8,505
  9,261
  10,003
  10,729
  11,437
  12,129
  12,806
  13,471
  14,127
  14,777
  15,427
  16,080
  16,740
  17,414
  18,104
  18,815
  19,552
  20,319
  21,119
  21,957
Issuance/(repurchase) of shares, $m
  364
  0
  0
  0
  0
  0
  0
  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 from financing (excl. dividends), $m  
  1,713
  1,723
  2,205
  2,750
  3,356
  4,013
  4,714
  5,447
  6,202
  6,969
  7,739
  8,505
  9,261
  10,003
  10,729
  11,437
  12,129
  12,806
  13,471
  14,127
  14,777
  15,427
  16,080
  16,740
  17,414
  18,104
  18,815
  19,552
  20,319
  21,119
  21,957
Total cash flow (excl. dividends), $m
  1,893
  490
  815
  1,217
  1,710
  2,300
  2,993
  3,793
  4,705
  5,728
  6,865
  8,110
  9,468
  10,934
  12,506
  14,181
  15,957
  17,831
  19,802
  21,868
  24,029
  26,285
  28,636
  31,083
  33,629
  36,276
  39,027
  41,887
  44,858
  47,947
  51,159
Retained Cash Flow (-), $m
  357
  -404
  -517
  -645
  -787
  -941
  -1,106
  -1,278
  -1,455
  -1,635
  -1,815
  -1,995
  -2,172
  -2,346
  -2,517
  -2,683
  -2,845
  -3,004
  -3,160
  -3,314
  -3,466
  -3,619
  -3,772
  -3,927
  -4,085
  -4,247
  -4,413
  -4,586
  -4,766
  -4,954
  -5,150
Prev. year cash balance distribution, $m
 
  529
  0
  0
  0
  0
  0
  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
 
  615
  297
  572
  923
  1,358
  1,887
  2,516
  3,250
  4,094
  5,049
  6,115
  7,295
  8,588
  9,989
  11,498
  13,112
  14,827
  16,642
  18,554
  20,563
  22,666
  24,864
  27,157
  29,545
  32,030
  34,614
  37,300
  40,092
  42,993
  46,009
Discount rate, %
 
  9.20
  9.66
  10.14
  10.65
  11.18
  11.74
  12.33
  12.95
  13.59
  14.27
  14.99
  15.74
  16.52
  17.35
  18.22
  19.13
  20.08
  21.09
  22.14
  23.25
  24.41
  25.63
  26.91
  28.26
  29.67
  31.15
  32.71
  34.35
  36.07
  37.87
PV of cash for distribution, $m
 
  563
  247
  428
  616
  799
  969
  1,115
  1,227
  1,300
  1,330
  1,316
  1,263
  1,176
  1,064
  934
  797
  661
  531
  415
  314
  231
  164
  113
  75
  48
  30
  18
  10
  6
  3
Current shareholders' claim on cash, %
  100
  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
  100.0

Tesoro Logistics LP owns, operates, develops, and acquires logistics assets related to crude oil and refined products in the United States. It operates in three segments: Gathering, Processing, and Terminalling and Transportation. The Gathering segment includes crude oil and natural gas pipeline gathering systems in the Bakken Shale/Williston Basin area of North Dakota and Montana; and the Green River Basin, Uinta Basin, and Vermillion Basin in the states of Utah, Colorado, and Wyoming. The Processing segment consists of gas processing and fractionation complexes. The Terminalling and Transportation segment comprises the Northwest Products Pipeline, which includes a regulated common carrier products pipeline running from Salt Lake City, Utah to Spokane, Washington and a jet fuel pipeline to the Salt Lake City International Airport; a regulated common carrier refined products pipeline system connecting the company’s Kenai refinery to its terminals in Anchorage, Alaska; tankage and related equipment at the Kenai refinery; and crude oil and refined products terminals and storage facilities in the western and midwestern U.S. This segment also consists of marine terminals in California; a rail-car unloading facility in Washington; a petroleum coke handling and storage facility in Los Angeles; and other pipelines, which transport products and crude oil from the company’s refineries to nearby facilities in Salt Lake City and Los Angeles. Tesoro Logistics GP, LLC operates as a general partner of the company. The company was founded in 2010 and is based in San Antonio, Texas.

FINANCIAL RATIOS  of  Tesoro Logistics (TLLP)

Valuation Ratios
P/E Ratio 17
Price to Sales 4.4
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 10.8
Price to Free Cash Flow 22.6
Growth Rates
Sales Growth Rate 9.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -32.1%
Cap. Spend. - 3 Yr. Gr. Rate 26.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 262.8%
Total Debt to Equity 262.8%
Interest Coverage 3
Management Effectiveness
Return On Assets 8.7%
Ret/ On Assets - 3 Yr. Avg. 6.7%
Return On Total Capital 6.1%
Ret/ On T. Cap. - 3 Yr. Avg. 4.4%
Return On Equity 18.3%
Return On Equity - 3 Yr. Avg. 12.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 61.4%
Gross Margin - 3 Yr. Avg. 55.1%
EBITDA Margin 54.9%
EBITDA Margin - 3 Yr. Avg. 47.4%
Operating Margin 39.9%
Oper. Margin - 3 Yr. Avg. 34.2%
Pre-Tax Margin 25.8%
Pre-Tax Margin - 3 Yr. Avg. 19.2%
Net Profit Margin 25.8%
Net Profit Margin - 3 Yr. Avg. 18.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0.1%
Payout Ratio 387.6%

TLLP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TLLP stock intrinsic value calculation we used $1220 million for the last fiscal year's total revenue generated by Tesoro Logistics. The default revenue input number comes from 2016 income statement of Tesoro Logistics. 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 TLLP stock valuation model: a) initial revenue growth rate of 40% 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 9.2%, whose default value for TLLP is calculated based on our internal credit rating of Tesoro Logistics, 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 Tesoro Logistics.
    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 TLLP stock the variable cost ratio is equal to 13%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $589 million in the base year in the intrinsic value calculation for TLLP 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 4.8% for Tesoro Logistics.

Corporate tax rate of 27% is the nominal tax rate for Tesoro Logistics. 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 TLLP 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 TLLP are equal to 370.8%.

Life of production assets of 24.5 years is the average useful life of capital assets used in Tesoro Logistics 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 TLLP is equal to 3.1%. 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 - $1542 million for Tesoro Logistics - 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 108.692 million for Tesoro Logistics 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 Tesoro Logistics at the current share price and the inputted number of shares is $5.7 billion.

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Stock chart of TLLP Financial statements of TLLP
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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