Intrinsic value of Concho Resources Inc. - CXO

Previous Close

$69.68

  Intrinsic Value

$20.60

stock screener

  Rating & Target

str. sell

-70%

Previous close

$69.68

 
Intrinsic value

$20.60

 
Up/down potential

-70%

 
Rating

str. sell

We calculate the intrinsic value of CXO 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 0001), $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 14.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  36.80
  33.62
  30.76
  28.18
  25.86
  23.78
  21.90
  20.21
  18.69
  17.32
  16.09
  14.98
  13.98
  13.08
  12.27
  11.55
  10.89
  10.30
  9.77
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.28
  7.05
  6.85
  6.66
  6.50
Revenue, $m
  5,679
  7,588
  9,922
  12,718
  16,007
  19,813
  24,152
  29,033
  34,459
  40,427
  46,931
  53,961
  61,506
  69,552
  78,090
  87,107
  96,595
  106,548
  116,961
  127,833
  139,167
  150,968
  163,244
  176,007
  189,272
  203,056
  217,381
  232,270
  247,749
  263,847
Variable operating expenses, $m
  2,325
  3,031
  3,895
  4,929
  6,146
  7,554
  9,160
  10,966
  12,973
  15,181
  17,363
  19,964
  22,755
  25,732
  28,891
  32,227
  35,737
  39,419
  43,271
  47,294
  51,487
  55,853
  60,395
  65,116
  70,024
  75,124
  80,423
  85,932
  91,658
  97,614
Fixed operating expenses, $m
  305
  311
  318
  325
  332
  340
  347
  355
  362
  370
  379
  387
  395
  404
  413
  422
  431
  441
  451
  461
  471
  481
  492
  502
  513
  525
  536
  548
  560
  572
Total operating expenses, $m
  2,630
  3,342
  4,213
  5,254
  6,478
  7,894
  9,507
  11,321
  13,335
  15,551
  17,742
  20,351
  23,150
  26,136
  29,304
  32,649
  36,168
  39,860
  43,722
  47,755
  51,958
  56,334
  60,887
  65,618
  70,537
  75,649
  80,959
  86,480
  92,218
  98,186
Operating income, $m
  3,049
  4,245
  5,709
  7,463
  9,528
  11,919
  14,645
  17,713
  21,124
  24,876
  29,190
  33,610
  38,355
  43,416
  48,786
  54,458
  60,427
  66,688
  73,239
  80,079
  87,210
  94,634
  102,358
  110,388
  118,735
  127,408
  136,422
  145,790
  155,531
  165,661
EBITDA, $m
  5,238
  7,095
  9,366
  12,089
  15,292
  19,000
  23,228
  27,984
  33,273
  39,091
  45,431
  52,284
  59,640
  67,486
  75,810
  84,603
  93,855
  103,560
  113,715
  124,317
  135,370
  146,878
  158,851
  171,298
  184,235
  197,678
  211,649
  226,170
  241,267
  256,969
Interest expense (income), $m
  232
  235
  384
  570
  798
  1,072
  1,393
  1,765
  2,189
  2,667
  3,197
  3,780
  4,416
  5,103
  5,841
  6,627
  7,462
  8,343
  9,271
  10,243
  11,261
  12,324
  13,432
  14,585
  15,785
  17,033
  18,329
  19,677
  21,077
  22,532
  24,045
Earnings before tax, $m
  2,814
  3,861
  5,138
  6,665
  8,457
  10,526
  12,880
  15,523
  18,457
  21,679
  25,409
  29,194
  33,252
  37,576
  42,159
  46,997
  52,084
  57,418
  62,996
  68,818
  74,886
  81,202
  87,773
  94,603
  101,702
  109,079
  116,745
  124,713
  132,998
  141,615
Tax expense, $m
  760
  1,043
  1,387
  1,799
  2,283
  2,842
  3,478
  4,191
  4,983
  5,853
  6,861
  7,883
  8,978
  10,145
  11,383
  12,689
  14,063
  15,503
  17,009
  18,581
  20,219
  21,925
  23,699
  25,543
  27,459
  29,451
  31,521
  33,673
  35,910
  38,236
Net income, $m
  2,054
  2,819
  3,751
  4,865
  6,173
  7,684
  9,402
  11,332
  13,474
  15,826
  18,549
  21,312
  24,274
  27,430
  30,776
  34,308
  38,021
  41,915
  45,987
  50,237
  54,667
  59,278
  64,074
  69,060
  74,242
  79,627
  85,224
  91,041
  97,089
  103,379

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  35,940
  48,023
  62,794
  80,491
  101,310
  125,399
  152,861
  183,754
  218,095
  255,869
  297,033
  341,526
  389,276
  440,205
  494,240
  551,311
  611,364
  674,354
  740,259
  809,071
  880,805
  955,493
  1,033,190
  1,113,969
  1,197,924
  1,285,167
  1,375,831
  1,470,064
  1,568,033
  1,669,921
Adjusted assets (=assets-cash), $m
  35,940
  48,023
  62,794
  80,491
  101,310
  125,399
  152,861
  183,754
  218,095
  255,869
  297,033
  341,526
  389,276
  440,205
  494,240
  551,311
  611,364
  674,354
  740,259
  809,071
  880,805
  955,493
  1,033,190
  1,113,969
  1,197,924
  1,285,167
  1,375,831
  1,470,064
  1,568,033
  1,669,921
Revenue / Adjusted assets
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
  0.158
Average production assets, $m
  24,957
  33,348
  43,605
  55,894
  70,350
  87,078
  106,148
  127,600
  151,447
  177,678
  206,263
  237,159
  270,317
  305,683
  343,205
  382,836
  424,537
  468,278
  514,043
  561,827
  611,640
  663,504
  717,457
  773,551
  831,850
  892,433
  955,391
  1,020,827
  1,088,858
  1,159,610
Working capital, $m
  -375
  -501
  -655
  -839
  -1,056
  -1,308
  -1,594
  -1,916
  -2,274
  -2,668
  -3,097
  -3,561
  -4,059
  -4,590
  -5,154
  -5,749
  -6,375
  -7,032
  -7,719
  -8,437
  -9,185
  -9,964
  -10,774
  -11,616
  -12,492
  -13,402
  -14,347
  -15,330
  -16,351
  -17,414
Total debt, $m
  7,106
  10,562
  14,786
  19,848
  25,802
  32,691
  40,545
  49,381
  59,202
  70,006
  81,778
  94,504
  108,160
  122,726
  138,180
  154,502
  171,677
  189,692
  208,541
  228,221
  248,737
  270,098
  292,319
  315,422
  339,433
  364,385
  390,315
  417,265
  445,284
  474,424
Total liabilities, $m
  10,279
  13,735
  17,959
  23,021
  28,975
  35,864
  43,718
  52,554
  62,375
  73,179
  84,951
  97,677
  111,333
  125,899
  141,353
  157,675
  174,850
  192,865
  211,714
  231,394
  251,910
  273,271
  295,492
  318,595
  342,606
  367,558
  393,488
  420,438
  448,457
  477,597
Total equity, $m
  25,661
  34,289
  44,835
  57,471
  72,335
  89,535
  109,143
  131,200
  155,720
  182,690
  212,082
  243,850
  277,943
  314,307
  352,887
  393,636
  436,514
  481,489
  528,545
  577,677
  628,895
  682,222
  737,697
  795,374
  855,317
  917,609
  982,343
  1,049,626
  1,119,575
  1,192,323
Total liabilities and equity, $m
  35,940
  48,024
  62,794
  80,492
  101,310
  125,399
  152,861
  183,754
  218,095
  255,869
  297,033
  341,527
  389,276
  440,206
  494,240
  551,311
  611,364
  674,354
  740,259
  809,071
  880,805
  955,493
  1,033,189
  1,113,969
  1,197,923
  1,285,167
  1,375,831
  1,470,064
  1,568,032
  1,669,920
Debt-to-equity ratio
  0.280
  0.310
  0.330
  0.350
  0.360
  0.370
  0.370
  0.380
  0.380
  0.380
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.400
  0.400
  0.400
  0.400
  0.400
  0.400
  0.400
  0.400
  0.400
  0.400
  0.400
Adjusted equity ratio
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714
  0.714

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,054
  2,819
  3,751
  4,865
  6,173
  7,684
  9,402
  11,332
  13,474
  15,826
  18,549
  21,312
  24,274
  27,430
  30,776
  34,308
  38,021
  41,915
  45,987
  50,237
  54,667
  59,278
  64,074
  69,060
  74,242
  79,627
  85,224
  91,041
  97,089
  103,379
Depreciation, amort., depletion, $m
  2,189
  2,850
  3,658
  4,625
  5,764
  7,081
  8,582
  10,272
  12,149
  14,215
  16,241
  18,674
  21,285
  24,070
  27,024
  30,145
  33,428
  36,872
  40,476
  44,238
  48,161
  52,244
  56,493
  60,910
  65,500
  70,270
  75,228
  80,380
  85,737
  91,308
Funds from operations, $m
  4,244
  5,669
  7,409
  9,491
  11,937
  14,765
  17,985
  21,604
  25,623
  30,040
  34,790
  39,986
  45,559
  51,500
  57,800
  64,452
  71,449
  78,787
  86,463
  94,475
  102,827
  111,522
  120,567
  129,970
  139,742
  149,898
  160,451
  171,421
  182,826
  194,687
Change in working capital, $m
  -101
  -126
  -154
  -185
  -217
  -251
  -286
  -322
  -358
  -394
  -429
  -464
  -498
  -531
  -563
  -595
  -626
  -657
  -687
  -718
  -748
  -779
  -810
  -842
  -875
  -910
  -945
  -983
  -1,022
  -1,062
Cash from operations, $m
  4,344
  5,795
  7,563
  9,675
  12,154
  15,016
  18,271
  21,926
  25,981
  30,434
  35,219
  40,450
  46,057
  52,031
  58,364
  65,047
  72,076
  79,444
  87,150
  95,193
  103,575
  112,301
  121,377
  130,812
  140,618
  150,807
  161,397
  172,403
  183,847
  195,750
Maintenance CAPEX, $m
  -1,437
  -1,965
  -2,626
  -3,433
  -4,401
  -5,539
  -6,857
  -8,358
  -10,047
  -11,925
  -13,990
  -16,241
  -18,674
  -21,285
  -24,070
  -27,024
  -30,145
  -33,428
  -36,872
  -40,476
  -44,238
  -48,161
  -52,244
  -56,493
  -60,910
  -65,500
  -70,270
  -75,228
  -80,380
  -85,737
New CAPEX, $m
  -6,713
  -8,391
  -10,257
  -12,289
  -14,456
  -16,728
  -19,070
  -21,452
  -23,847
  -26,231
  -28,585
  -30,896
  -33,158
  -35,366
  -37,522
  -39,631
  -41,701
  -43,742
  -45,765
  -47,784
  -49,812
  -51,864
  -53,953
  -56,094
  -58,299
  -60,583
  -62,958
  -65,436
  -68,030
  -70,752
Cash from investing activities, $m
  -8,150
  -10,356
  -12,883
  -15,722
  -18,857
  -22,267
  -25,927
  -29,810
  -33,894
  -38,156
  -42,575
  -47,137
  -51,832
  -56,651
  -61,592
  -66,655
  -71,846
  -77,170
  -82,637
  -88,260
  -94,050
  -100,025
  -106,197
  -112,587
  -119,209
  -126,083
  -133,228
  -140,664
  -148,410
  -156,489
Free cash flow, $m
  -3,805
  -4,561
  -5,320
  -6,047
  -6,703
  -7,251
  -7,655
  -7,885
  -7,913
  -7,721
  -7,356
  -6,688
  -5,775
  -4,620
  -3,228
  -1,608
  230
  2,274
  4,513
  6,933
  9,524
  12,276
  15,179
  18,226
  21,409
  24,725
  28,169
  31,740
  35,437
  39,261
Issuance/(repayment) of debt, $m
  2,753
  3,456
  4,225
  5,061
  5,954
  6,889
  7,854
  8,835
  9,822
  10,803
  11,773
  12,725
  13,656
  14,566
  15,454
  16,322
  17,175
  18,015
  18,849
  19,680
  20,516
  21,361
  22,221
  23,103
  24,011
  24,952
  25,930
  26,951
  28,019
  29,140
Issuance/(repurchase) of shares, $m
  4,839
  5,809
  6,796
  7,770
  8,691
  9,516
  10,206
  10,725
  11,046
  11,145
  10,842
  10,456
  9,819
  8,933
  7,804
  6,441
  4,856
  3,061
  1,069
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  7,592
  9,265
  11,021
  12,831
  14,645
  16,405
  18,060
  19,560
  20,868
  21,948
  22,615
  23,181
  23,475
  23,499
  23,258
  22,763
  22,031
  21,076
  19,918
  19,680
  20,516
  21,361
  22,221
  23,103
  24,011
  24,952
  25,930
  26,951
  28,019
  29,140
Total cash flow (excl. dividends), $m
  3,787
  4,703
  5,700
  6,784
  7,942
  9,154
  10,404
  11,676
  12,955
  14,227
  15,259
  16,493
  17,701
  18,879
  20,030
  21,156
  22,261
  23,350
  24,431
  26,613
  30,040
  33,637
  37,400
  41,328
  45,420
  49,676
  54,098
  58,690
  63,456
  68,401
Retained Cash Flow (-), $m
  -6,893
  -8,627
  -10,547
  -12,636
  -14,864
  -17,200
  -19,608
  -22,058
  -24,520
  -26,971
  -29,391
  -31,768
  -34,093
  -36,364
  -38,581
  -40,749
  -42,877
  -44,975
  -47,056
  -49,132
  -51,218
  -53,327
  -55,475
  -57,676
  -59,944
  -62,292
  -64,734
  -67,282
  -69,950
  -72,748
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
  -3,106
  -3,924
  -4,847
  -5,851
  -6,923
  -8,046
  -9,204
  -10,381
  -11,565
  -12,744
  -14,132
  -15,275
  -16,393
  -17,484
  -18,550
  -19,593
  -20,616
  -21,625
  -22,625
  -22,519
  -21,178
  -19,690
  -18,075
  -16,348
  -14,524
  -12,616
  -10,635
  -8,592
  -6,494
  -4,347
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  -2,978
  -3,592
  -4,218
  -4,818
  -5,366
  -5,839
  -6,218
  -6,489
  -6,644
  -6,681
  -6,711
  -6,518
  -6,233
  -5,870
  -5,446
  -4,979
  -4,486
  -3,982
  -3,484
  -2,861
  -2,190
  -1,634
  -1,185
  -833
  -565
  -368
  -228
  -133
  -71
  -33
Current shareholders' claim on cash, %
  74.3
  57.0
  45.0
  36.5
  30.3
  25.8
  22.4
  19.8
  17.7
  16.2
  15.0
  14.1
  13.3
  12.8
  12.4
  12.1
  11.9
  11.8
  11.7
  11.7
  11.7
  11.7
  11.7
  11.7
  11.7
  11.7
  11.7
  11.7
  11.7
  11.7

Concho Resources Inc. is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. The Company's four operating areas include the Northern Delaware Basin, the Southern Delaware Basin, the Midland Basin and the New Mexico Shelf. As of December 31, 2016, the Company's operations were focused in the Permian Basin, which underlies an area of Southeast New Mexico and West Texas approximately 250 miles wide and 300 miles long. The Permian Basin is an oil and natural gas producing region in the United States and is characterized by multiple producing horizons and enhanced recovery potential. As of December 31, 2016, the Company produced approximately 55.1 million barrels of oil equivalent (MMBoe) of oil and natural gas. As of December 31, 2016, all of its 720 MMBoe total estimated proved reserves were located in its core operating areas and consisted of approximately 59.5% oil and 40.5% natural gas.

FINANCIAL RATIOS  of  Concho Resources Inc. (CXO)

Valuation Ratios
P/E Ratio -7
Price to Sales 6.2
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow -9.5
Growth Rates
Sales Growth Rate -9.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.1%
Cap. Spend. - 3 Yr. Gr. Rate 5.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 36%
Total Debt to Equity 36%
Interest Coverage -9
Management Effectiveness
Return On Assets -10.6%
Ret/ On Assets - 3 Yr. Avg. -0.9%
Return On Total Capital -14.2%
Ret/ On T. Cap. - 3 Yr. Avg. -2.3%
Return On Equity -20.1%
Return On Equity - 3 Yr. Avg. -2.4%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 72.4%
Gross Margin - 3 Yr. Avg. 74%
EBITDA Margin -57.5%
EBITDA Margin - 3 Yr. Avg. 34.8%
Operating Margin -130%
Oper. Margin - 3 Yr. Avg. -23.7%
Pre-Tax Margin -143.1%
Pre-Tax Margin - 3 Yr. Avg. -35.2%
Net Profit Margin -89.4%
Net Profit Margin - 3 Yr. Avg. -21.8%
Effective Tax Rate 37.5%
Eff/ Tax Rate - 3 Yr. Avg. 35.5%
Payout Ratio 0%

CXO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CXO stock intrinsic value calculation we used $4151 million for the last fiscal year's total revenue generated by Concho Resources Inc.. The default revenue input number comes from 0001 income statement of Concho Resources Inc.. 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 CXO stock valuation model: a) initial revenue growth rate of 36.8% 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 4.3%, whose default value for CXO is calculated based on our internal credit rating of Concho Resources Inc., 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 Concho Resources Inc..
    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 CXO stock the variable cost ratio is equal to 42.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $298 million in the base year in the intrinsic value calculation for CXO 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 5.4% for Concho Resources Inc..

Corporate tax rate of 27% is the nominal tax rate for Concho Resources Inc.. 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 CXO 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 CXO are equal to 439.5%.

Life of production assets of 12.7 years is the average useful life of capital assets used in Concho Resources Inc. 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 CXO is equal to -6.6%. 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 - $18768 million for Concho Resources Inc. - 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 200.579 million for Concho Resources Inc. 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 Concho Resources Inc. at the current share price and the inputted number of shares is $14.0 billion.

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