Intrinsic value of Williams - WMB

Previous Close

$30.30

  Intrinsic Value

$1.41

stock screener

  Rating & Target

str. sell

-95%

  Value-price divergence*

-51%

Previous close

$30.30

 
Intrinsic value

$1.41

 
Up/down potential

-95%

 
Rating

str. sell

 
Value-price divergence*

-51%

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

We calculate the intrinsic value of WMB 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 25.0

 

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, %
  1.89
  10.80
  10.22
  9.70
  9.23
  8.81
  8.42
  8.08
  7.77
  7.50
  7.25
  7.02
  6.82
  6.64
  6.47
  6.33
  6.19
  6.07
  5.97
  5.87
  5.78
  5.71
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
Revenue, $m
  7,499
  8,309
  9,158
  10,046
  10,973
  11,940
  12,945
  13,992
  15,079
  16,210
  17,385
  18,605
  19,874
  21,194
  22,566
  23,993
  25,480
  27,028
  28,640
  30,322
  32,075
  33,905
  35,816
  37,811
  39,896
  42,075
  44,354
  46,738
  49,233
  51,844
  54,578
Variable operating expenses, $m
 
  9,588
  10,568
  11,593
  12,663
  13,778
  14,939
  16,146
  17,402
  18,706
  20,062
  21,471
  22,935
  24,457
  26,041
  27,688
  29,404
  31,190
  33,051
  34,991
  37,015
  39,127
  41,331
  43,634
  46,040
  48,555
  51,185
  53,936
  56,815
  59,828
  62,983
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
  7,229
  9,588
  10,568
  11,593
  12,663
  13,778
  14,939
  16,146
  17,402
  18,706
  20,062
  21,471
  22,935
  24,457
  26,041
  27,688
  29,404
  31,190
  33,051
  34,991
  37,015
  39,127
  41,331
  43,634
  46,040
  48,555
  51,185
  53,936
  56,815
  59,828
  62,983
Operating income, $m
  270
  -1,280
  -1,410
  -1,547
  -1,690
  -1,839
  -1,994
  -2,155
  -2,322
  -2,496
  -2,677
  -2,865
  -3,061
  -3,264
  -3,475
  -3,695
  -3,924
  -4,162
  -4,411
  -4,670
  -4,940
  -5,221
  -5,516
  -5,823
  -6,144
  -6,480
  -6,831
  -7,198
  -7,582
  -7,984
  -8,405
EBITDA, $m
  2,033
  677
  746
  818
  894
  973
  1,054
  1,140
  1,228
  1,320
  1,416
  1,515
  1,619
  1,726
  1,838
  1,954
  2,075
  2,202
  2,333
  2,470
  2,613
  2,762
  2,917
  3,080
  3,250
  3,427
  3,613
  3,807
  4,010
  4,223
  4,446
Interest expense (income), $m
  1,152
  1,120
  1,332
  1,560
  1,799
  2,047
  2,307
  2,576
  2,857
  3,149
  3,452
  3,768
  4,095
  4,436
  4,790
  5,158
  5,541
  5,940
  6,355
  6,788
  7,239
  7,709
  8,200
  8,713
  9,248
  9,808
  10,393
  11,004
  11,644
  12,313
  13,014
Earnings before tax, $m
  -375
  -2,400
  -2,743
  -3,107
  -3,488
  -3,886
  -4,300
  -4,731
  -5,179
  -5,645
  -6,130
  -6,633
  -7,156
  -7,699
  -8,265
  -8,853
  -9,465
  -10,102
  -10,766
  -11,457
  -12,178
  -12,931
  -13,716
  -14,536
  -15,392
  -16,287
  -17,223
  -18,202
  -19,226
  -20,297
  -21,419
Tax expense, $m
  -25
  0
  0
  0
  0
  0
  0
  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
  -424
  -2,400
  -2,743
  -3,107
  -3,488
  -3,886
  -4,300
  -4,731
  -5,179
  -5,645
  -6,130
  -6,633
  -7,156
  -7,699
  -8,265
  -8,853
  -9,465
  -10,102
  -10,766
  -11,457
  -12,178
  -12,931
  -13,716
  -14,536
  -15,392
  -16,287
  -17,223
  -18,202
  -19,226
  -20,297
  -21,419

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  170
  0
  0
  0
  0
  0
  0
  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
  46,835
  51,608
  56,882
  62,399
  68,157
  74,159
  80,406
  86,905
  93,661
  100,683
  107,979
  115,562
  123,443
  131,638
  140,160
  149,028
  158,259
  167,873
  177,890
  188,333
  199,226
  210,592
  222,458
  234,851
  247,801
  261,338
  275,493
  290,300
  305,794
  322,012
  338,992
Adjusted assets (=assets-cash), $m
  46,665
  51,608
  56,882
  62,399
  68,157
  74,159
  80,406
  86,905
  93,661
  100,683
  107,979
  115,562
  123,443
  131,638
  140,160
  149,028
  158,259
  167,873
  177,890
  188,333
  199,226
  210,592
  222,458
  234,851
  247,801
  261,338
  275,493
  290,300
  305,794
  322,012
  338,992
Revenue / Adjusted assets
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
  0.161
Average production assets, $m
  38,844
  43,040
  47,439
  52,039
  56,842
  61,847
  67,057
  72,477
  78,112
  83,967
  90,052
  96,376
  102,949
  109,783
  116,891
  124,286
  131,985
  140,003
  148,357
  157,066
  166,150
  175,629
  185,525
  195,861
  206,661
  217,950
  229,755
  242,104
  255,026
  268,551
  282,712
Working capital, $m
  -1,487
  -864
  -952
  -1,045
  -1,141
  -1,242
  -1,346
  -1,455
  -1,568
  -1,686
  -1,808
  -1,935
  -2,067
  -2,204
  -2,347
  -2,495
  -2,650
  -2,811
  -2,979
  -3,153
  -3,336
  -3,526
  -3,725
  -3,932
  -4,149
  -4,376
  -4,613
  -4,861
  -5,120
  -5,392
  -5,676
Total debt, $m
  23,502
  27,757
  32,504
  37,469
  42,651
  48,053
  53,676
  59,525
  65,605
  71,924
  78,491
  85,316
  92,409
  99,784
  107,454
  115,435
  123,743
  132,395
  141,411
  150,810
  160,613
  170,843
  181,522
  192,676
  204,331
  216,514
  229,253
  242,580
  256,524
  271,120
  286,403
Total liabilities, $m
  42,192
  46,447
  51,194
  56,159
  61,341
  66,743
  72,366
  78,215
  84,295
  90,614
  97,181
  104,006
  111,099
  118,474
  126,144
  134,125
  142,433
  151,085
  160,101
  169,500
  179,303
  189,533
  200,212
  211,366
  223,021
  235,204
  247,943
  261,270
  275,214
  289,810
  305,093
Total equity, $m
  4,643
  5,161
  5,688
  6,240
  6,816
  7,416
  8,041
  8,691
  9,366
  10,068
  10,798
  11,556
  12,344
  13,164
  14,016
  14,903
  15,826
  16,787
  17,789
  18,833
  19,923
  21,059
  22,246
  23,485
  24,780
  26,134
  27,549
  29,030
  30,579
  32,201
  33,899
Total liabilities and equity, $m
  46,835
  51,608
  56,882
  62,399
  68,157
  74,159
  80,407
  86,906
  93,661
  100,682
  107,979
  115,562
  123,443
  131,638
  140,160
  149,028
  158,259
  167,872
  177,890
  188,333
  199,226
  210,592
  222,458
  234,851
  247,801
  261,338
  275,492
  290,300
  305,793
  322,011
  338,992
Debt-to-equity ratio
  5.062
  5.380
  5.710
  6.000
  6.260
  6.480
  6.680
  6.850
  7.000
  7.140
  7.270
  7.380
  7.490
  7.580
  7.670
  7.750
  7.820
  7.890
  7.950
  8.010
  8.060
  8.110
  8.160
  8.200
  8.250
  8.280
  8.320
  8.360
  8.390
  8.420
  8.450
Adjusted equity ratio
  0.098
  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
  -424
  -2,400
  -2,743
  -3,107
  -3,488
  -3,886
  -4,300
  -4,731
  -5,179
  -5,645
  -6,130
  -6,633
  -7,156
  -7,699
  -8,265
  -8,853
  -9,465
  -10,102
  -10,766
  -11,457
  -12,178
  -12,931
  -13,716
  -14,536
  -15,392
  -16,287
  -17,223
  -18,202
  -19,226
  -20,297
  -21,419
Depreciation, amort., depletion, $m
  1,763
  1,956
  2,156
  2,365
  2,584
  2,811
  3,048
  3,294
  3,551
  3,817
  4,093
  4,381
  4,680
  4,990
  5,313
  5,649
  5,999
  6,364
  6,743
  7,139
  7,552
  7,983
  8,433
  8,903
  9,394
  9,907
  10,443
  11,005
  11,592
  12,207
  12,851
Funds from operations, $m
  4,520
  -443
  -586
  -742
  -905
  -1,075
  -1,252
  -1,437
  -1,629
  -1,829
  -2,036
  -2,252
  -2,476
  -2,709
  -2,952
  -3,203
  -3,465
  -3,738
  -4,022
  -4,318
  -4,626
  -4,948
  -5,283
  -5,633
  -5,999
  -6,381
  -6,780
  -7,197
  -7,634
  -8,090
  -8,568
Change in working capital, $m
  856
  -84
  -88
  -92
  -96
  -100
  -105
  -109
  -113
  -118
  -122
  -127
  -132
  -137
  -143
  -148
  -155
  -161
  -168
  -175
  -182
  -190
  -199
  -208
  -217
  -227
  -237
  -248
  -259
  -272
  -284
Cash from operations, $m
  3,664
  -359
  -498
  -650
  -808
  -974
  -1,147
  -1,328
  -1,516
  -1,711
  -1,914
  -2,125
  -2,344
  -2,572
  -2,809
  -3,055
  -3,311
  -3,577
  -3,854
  -4,143
  -4,444
  -4,757
  -5,084
  -5,426
  -5,782
  -6,154
  -6,543
  -6,949
  -7,374
  -7,819
  -8,284
Maintenance CAPEX, $m
  0
  -1,766
  -1,956
  -2,156
  -2,365
  -2,584
  -2,811
  -3,048
  -3,294
  -3,551
  -3,817
  -4,093
  -4,381
  -4,680
  -4,990
  -5,313
  -5,649
  -5,999
  -6,364
  -6,743
  -7,139
  -7,552
  -7,983
  -8,433
  -8,903
  -9,394
  -9,907
  -10,443
  -11,005
  -11,592
  -12,207
New CAPEX, $m
  -2,051
  -4,197
  -4,399
  -4,601
  -4,802
  -5,005
  -5,210
  -5,420
  -5,634
  -5,856
  -6,085
  -6,324
  -6,573
  -6,834
  -7,108
  -7,396
  -7,699
  -8,018
  -8,354
  -8,709
  -9,084
  -9,479
  -9,896
  -10,336
  -10,800
  -11,289
  -11,805
  -12,349
  -12,922
  -13,525
  -14,161
Cash from investing activities, $m
  -416
  -5,963
  -6,355
  -6,757
  -7,167
  -7,589
  -8,021
  -8,468
  -8,928
  -9,407
  -9,902
  -10,417
  -10,954
  -11,514
  -12,098
  -12,709
  -13,348
  -14,017
  -14,718
  -15,452
  -16,223
  -17,031
  -17,879
  -18,769
  -19,703
  -20,683
  -21,712
  -22,792
  -23,927
  -25,117
  -26,368
Free cash flow, $m
  3,248
  -6,321
  -6,853
  -7,406
  -7,976
  -8,563
  -9,169
  -9,796
  -10,445
  -11,117
  -11,816
  -12,542
  -13,298
  -14,085
  -14,907
  -15,764
  -16,659
  -17,594
  -18,572
  -19,596
  -20,667
  -21,789
  -22,964
  -24,195
  -25,485
  -26,837
  -28,255
  -29,741
  -31,301
  -32,936
  -34,652
Issuance/(repayment) of debt, $m
  -972
  4,425
  4,747
  4,965
  5,182
  5,401
  5,623
  5,849
  6,080
  6,319
  6,567
  6,824
  7,093
  7,375
  7,670
  7,981
  8,308
  8,652
  9,016
  9,399
  9,803
  10,229
  10,679
  11,154
  11,655
  12,183
  12,740
  13,326
  13,945
  14,596
  15,282
Issuance/(repurchase) of shares, $m
  9
  2,917
  3,270
  3,659
  4,064
  4,486
  4,925
  5,381
  5,855
  6,348
  6,859
  7,391
  7,944
  8,519
  9,117
  9,740
  10,388
  11,063
  11,767
  12,502
  13,268
  14,067
  14,903
  15,775
  16,687
  17,641
  18,639
  19,683
  20,775
  21,919
  23,117
Cash from financing (excl. dividends), $m  
  -1,917
  7,342
  8,017
  8,624
  9,246
  9,887
  10,548
  11,230
  11,935
  12,667
  13,426
  14,215
  15,037
  15,894
  16,787
  17,721
  18,696
  19,715
  20,783
  21,901
  23,071
  24,296
  25,582
  26,929
  28,342
  29,824
  31,379
  33,009
  34,720
  36,515
  38,399
Total cash flow (excl. dividends), $m
  1,331
  1,021
  1,164
  1,217
  1,271
  1,324
  1,379
  1,434
  1,491
  1,549
  1,610
  1,673
  1,739
  1,808
  1,881
  1,957
  2,037
  2,122
  2,211
  2,305
  2,404
  2,508
  2,619
  2,735
  2,858
  2,987
  3,124
  3,267
  3,419
  3,579
  3,747
Retained Cash Flow (-), $m
  1,505
  -2,917
  -3,270
  -3,659
  -4,064
  -4,486
  -4,925
  -5,381
  -5,855
  -6,348
  -6,859
  -7,391
  -7,944
  -8,519
  -9,117
  -9,740
  -10,388
  -11,063
  -11,767
  -12,502
  -13,268
  -14,067
  -14,903
  -15,775
  -16,687
  -17,641
  -18,639
  -19,683
  -20,775
  -21,919
  -23,117
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
 
  -1,896
  -2,106
  -2,442
  -2,794
  -3,162
  -3,546
  -3,947
  -4,364
  -4,798
  -5,249
  -5,718
  -6,205
  -6,711
  -7,236
  -7,783
  -8,351
  -8,942
  -9,557
  -10,197
  -10,864
  -11,559
  -12,284
  -13,040
  -13,830
  -14,654
  -15,515
  -16,415
  -17,356
  -18,340
  -19,370
Discount rate, %
 
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.10
  33.71
  35.40
  37.17
  39.02
  40.97
  43.02
  45.17
  47.43
  49.81
PV of cash for distribution, $m
 
  -1,691
  -1,658
  -1,677
  -1,654
  -1,592
  -1,498
  -1,379
  -1,241
  -1,092
  -940
  -790
  -649
  -521
  -407
  -310
  -230
  -166
  -117
  -79
  -52
  -33
  -21
  -12
  -7
  -4
  -2
  -1
  -1
  0
  0
Current shareholders' claim on cash, %
  100
  89.5
  80.1
  71.6
  63.8
  56.9
  50.6
  45.0
  40.0
  35.5
  31.5
  28.0
  24.8
  22.0
  19.5
  17.3
  15.3
  13.5
  12.0
  10.6
  9.4
  8.3
  7.3
  6.5
  5.7
  5.0
  4.4
  3.9
  3.5
  3.1
  2.7

The Williams Companies, Inc. is an energy infrastructure company. The Company is focused on connecting North America's hydrocarbon resource plays to markets for natural gas, natural gas liquids (NGL), and olefins. As of December 31, 2016, its interstate gas pipelines, midstream and olefins production interests were held through its investment in Williams Partners L.P. (WPZ). The Company's segments include Williams Partners, Williams NGL & Petchem Services and Other. The Williams Partners segment includes its consolidated master limited partnership, WPZ. The gas pipeline business includes interstate natural gas pipelines and pipeline joint project investments. The midstream business provides natural gas gathering, treating, processing and compression services. The Williams NGL & Petchem Services segment includes its Texas Belle pipeline and certain other domestic olefins pipeline assets. Other segment includes its corporate operations and Canadian construction services company.

FINANCIAL RATIOS  of  Williams (WMB)

Valuation Ratios
P/E Ratio -53.6
Price to Sales 3
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 6.2
Price to Free Cash Flow 14.1
Growth Rates
Sales Growth Rate 1.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.2%
Cap. Spend. - 3 Yr. Gr. Rate -10.5%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 487.3%
Total Debt to Equity 506.2%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.4%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital -1.4%
Ret/ On T. Cap. - 3 Yr. Avg. 1.9%
Return On Equity -7.9%
Return On Equity - 3 Yr. Avg. 5.2%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 77%
Gross Margin - 3 Yr. Avg. 71.1%
EBITDA Margin 33.9%
EBITDA Margin - 3 Yr. Avg. 39.8%
Operating Margin 3.6%
Oper. Margin - 3 Yr. Avg. 2.9%
Pre-Tax Margin -5%
Pre-Tax Margin - 3 Yr. Avg. 6.2%
Net Profit Margin -5.7%
Net Profit Margin - 3 Yr. Avg. 4.8%
Effective Tax Rate 6.7%
Eff/ Tax Rate - 3 Yr. Avg. 21.6%
Payout Ratio -297.4%

WMB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WMB stock intrinsic value calculation we used $7499 million for the last fiscal year's total revenue generated by Williams. The default revenue input number comes from 2016 income statement of Williams. 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 WMB stock valuation model: a) initial revenue growth rate of 10.8% 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 12.1%, whose default value for WMB is calculated based on our internal credit rating of Williams, 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 Williams.
    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 WMB stock the variable cost ratio is equal to 115.4%.

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 WMB 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 Williams.

Corporate tax rate of 27% is the nominal tax rate for Williams. 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 WMB 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 WMB are equal to 518%.

Life of production assets of 22 years is the average useful life of capital assets used in Williams 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 WMB is equal to -10.4%. 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 - $4643 million for Williams - 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 824.43 million for Williams 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 Williams at the current share price and the inputted number of shares is $25.0 billion.

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COMPANY NEWS

▶ What Does WMBs Current Valuation Indicate?   [07:37AM  Market Realist]
▶ Williams Companies Stock Trends and Technical Indicators   [Sep-08-17 10:37AM  Market Realist]
▶ Harvey causes gas prices to spike   [11:51AM  Yahoo Finance Video]
▶ [$$] Williams Cos Names John Chandler as New CFO   [04:26PM  The Wall Street Journal]
▶ Are Analysts Bullish on Williams Companies?   [09:07AM  Market Realist]
▶ Williams Companies Valuation: What It Means   [Aug-22-17 12:05PM  Market Realist]
▶ Williams Announces Quarterly Cash Dividend   [07:45AM  Business Wire]
▶ How Large-Cap MLPs Fared in 2Q17   [Aug-10-17 01:34PM  Market Realist]
▶ Natural Gas: 'Efficiency Improvements are Terrifying'   [Aug-07-17 02:39PM  Barrons.com]
▶ [$$] Big Energy Outfits Power Up Payouts   [Aug-05-17 01:10AM  Barrons.com]
▶ Williams Partners Expansion Projects in 2Q17   [08:57AM  Market Realist]
▶ Williams Cos. misses 2Q profit forecasts   [Aug-02-17 05:41PM  Associated Press]
▶ What Analysts Recommend for Williams ahead of 2Q17 Earnings   [Jul-31-17 10:36AM  Market Realist]
▶ Will Williams Partners Coverage Ratio Improve in 2Q17?   [Jul-28-17 10:38AM  Market Realist]
▶ Why Analysts Expect Growth in Williams Partners Q2 Earnings   [Jul-27-17 05:18PM  Market Realist]
▶ Williams Partners Announces Quarterly Cash Distribution   [Jul-24-17 02:36PM  Business Wire]
▶ Is Williams Companies a Buy at Current Price Levels?   [Jul-20-17 12:14PM  Market Realist]
▶ Top Ranked Growth Stocks to Buy for July 13th   [Jul-13-17 11:53AM  Zacks]
▶ What Williams Companies Technical Indicators Are Suggesting   [Jul-12-17 06:05PM  Market Realist]
▶ Williams Companies: The Latest Wall Street Ratings   [Jul-03-17 10:38AM  Market Realist]
▶ Williams Companies Expected Price Range: The Next 7 Days   [Jun-30-17 05:05PM  Market Realist]
▶ [$$] Six MLPs to Buck the Correction   [Jun-29-17 12:06PM  Barrons.com]
▶ Weekly Top Insider Buys Highlight for the Week of June 23   [Jun-24-17 06:40PM  GuruFocus.com]
▶ Can Williams Partners Bounce Back from Its YTD Lows?   [Jun-23-17 05:18PM  Market Realist]
▶ Better Buy: Kinder Morgan, Inc. vs. Williams Partners LP   [Jun-21-17 02:30PM  Motley Fool]
Financial statements of WMB
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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