Intrinsic value of Diamond Offshore Drilling, Inc. - DO

Previous Close

$7.39

  Intrinsic Value

$6.50

stock screener

  Rating & Target

hold

-12%

Previous close

$7.39

 
Intrinsic value

$6.50

 
Up/down potential

-12%

 
Rating

hold

We calculate the intrinsic value of DO 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 1.0

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,105
  1,130
  1,159
  1,192
  1,228
  1,267
  1,311
  1,357
  1,408
  1,462
  1,520
  1,581
  1,647
  1,717
  1,791
  1,869
  1,952
  2,040
  2,133
  2,231
  2,334
  2,443
  2,558
  2,679
  2,807
  2,941
  3,083
  3,231
  3,388
  3,553
Variable operating expenses, $m
  260
  266
  272
  280
  289
  298
  308
  319
  331
  344
  357
  372
  387
  403
  421
  439
  459
  479
  501
  524
  549
  574
  601
  630
  660
  691
  724
  759
  796
  835
Fixed operating expenses, $m
  956
  977
  998
  1,020
  1,042
  1,065
  1,089
  1,113
  1,137
  1,162
  1,188
  1,214
  1,241
  1,268
  1,296
  1,324
  1,354
  1,383
  1,414
  1,445
  1,477
  1,509
  1,542
  1,576
  1,611
  1,646
  1,683
  1,720
  1,757
  1,796
Total operating expenses, $m
  1,216
  1,243
  1,270
  1,300
  1,331
  1,363
  1,397
  1,432
  1,468
  1,506
  1,545
  1,586
  1,628
  1,671
  1,717
  1,763
  1,813
  1,862
  1,915
  1,969
  2,026
  2,083
  2,143
  2,206
  2,271
  2,337
  2,407
  2,479
  2,553
  2,631
Operating income, $m
  -111
  -112
  -111
  -108
  -103
  -96
  -86
  -74
  -60
  -44
  -25
  -4
  19
  45
  74
  106
  140
  177
  218
  262
  309
  360
  415
  473
  536
  604
  676
  752
  834
  922
EBITDA, $m
  229
  235
  245
  258
  274
  294
  316
  343
  372
  405
  441
  481
  525
  573
  624
  680
  740
  804
  873
  947
  1,026
  1,111
  1,201
  1,297
  1,399
  1,507
  1,623
  1,745
  1,875
  2,013
Interest expense (income), $m
  106
  122
  125
  129
  133
  138
  143
  148
  154
  161
  168
  176
  184
  192
  202
  211
  222
  233
  244
  257
  270
  283
  298
  313
  329
  346
  364
  383
  403
  424
  446
Earnings before tax, $m
  -233
  -238
  -240
  -241
  -241
  -239
  -234
  -229
  -221
  -212
  -201
  -188
  -173
  -156
  -137
  -116
  -93
  -67
  -39
  -8
  26
  62
  101
  144
  190
  239
  292
  349
  410
  476
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  7
  17
  27
  39
  51
  65
  79
  94
  111
  128
Net income, $m
  -233
  -238
  -240
  -241
  -241
  -239
  -234
  -229
  -221
  -212
  -201
  -188
  -173
  -156
  -137
  -116
  -93
  -67
  -39
  -8
  19
  45
  74
  105
  139
  175
  213
  255
  300
  347

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
  5,939
  6,076
  6,232
  6,407
  6,601
  6,814
  7,047
  7,298
  7,568
  7,859
  8,170
  8,501
  8,854
  9,229
  9,627
  10,049
  10,496
  10,968
  11,467
  11,994
  12,550
  13,136
  13,754
  14,406
  15,091
  15,814
  16,574
  17,373
  18,215
  19,100
Adjusted assets (=assets-cash), $m
  5,939
  6,076
  6,232
  6,407
  6,601
  6,814
  7,047
  7,298
  7,568
  7,859
  8,170
  8,501
  8,854
  9,229
  9,627
  10,049
  10,496
  10,968
  11,467
  11,994
  12,550
  13,136
  13,754
  14,406
  15,091
  15,814
  16,574
  17,373
  18,215
  19,100
Revenue / Adjusted assets
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
  0.186
Average production assets, $m
  5,328
  5,450
  5,590
  5,748
  5,922
  6,113
  6,321
  6,547
  6,789
  7,050
  7,329
  7,626
  7,943
  8,279
  8,637
  9,015
  9,416
  9,839
  10,287
  10,760
  11,258
  11,784
  12,339
  12,923
  13,538
  14,186
  14,868
  15,585
  16,340
  17,134
Working capital, $m
  97
  99
  102
  105
  108
  112
  115
  119
  124
  129
  134
  139
  145
  151
  158
  164
  172
  180
  188
  196
  205
  215
  225
  236
  247
  259
  271
  284
  298
  313
Total debt, $m
  2,023
  2,081
  2,146
  2,220
  2,302
  2,392
  2,489
  2,595
  2,709
  2,831
  2,962
  3,102
  3,250
  3,408
  3,576
  3,754
  3,942
  4,141
  4,351
  4,572
  4,806
  5,053
  5,314
  5,588
  5,876
  6,180
  6,500
  6,837
  7,191
  7,564
Total liabilities, $m
  2,500
  2,558
  2,624
  2,697
  2,779
  2,869
  2,967
  3,072
  3,186
  3,309
  3,439
  3,579
  3,728
  3,886
  4,053
  4,231
  4,419
  4,618
  4,828
  5,050
  5,284
  5,530
  5,791
  6,065
  6,354
  6,657
  6,977
  7,314
  7,668
  8,041
Total equity, $m
  3,439
  3,518
  3,608
  3,710
  3,822
  3,946
  4,080
  4,225
  4,382
  4,550
  4,730
  4,922
  5,127
  5,344
  5,574
  5,819
  6,077
  6,351
  6,640
  6,945
  7,267
  7,606
  7,964
  8,341
  8,738
  9,156
  9,596
  10,059
  10,546
  11,059
Total liabilities and equity, $m
  5,939
  6,076
  6,232
  6,407
  6,601
  6,815
  7,047
  7,297
  7,568
  7,859
  8,169
  8,501
  8,855
  9,230
  9,627
  10,050
  10,496
  10,969
  11,468
  11,995
  12,551
  13,136
  13,755
  14,406
  15,092
  15,813
  16,573
  17,373
  18,214
  19,100
Debt-to-equity ratio
  0.590
  0.590
  0.590
  0.600
  0.600
  0.610
  0.610
  0.610
  0.620
  0.620
  0.630
  0.630
  0.630
  0.640
  0.640
  0.650
  0.650
  0.650
  0.660
  0.660
  0.660
  0.660
  0.670
  0.670
  0.670
  0.680
  0.680
  0.680
  0.680
  0.680
Adjusted equity ratio
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579
  0.579

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -233
  -238
  -240
  -241
  -241
  -239
  -234
  -229
  -221
  -212
  -201
  -188
  -173
  -156
  -137
  -116
  -93
  -67
  -39
  -8
  19
  45
  74
  105
  139
  175
  213
  255
  300
  347
Depreciation, amort., depletion, $m
  339
  347
  356
  366
  377
  389
  403
  417
  432
  449
  467
  486
  506
  527
  550
  574
  600
  627
  655
  685
  717
  751
  786
  823
  862
  904
  947
  993
  1,041
  1,091
Funds from operations, $m
  106
  110
  116
  125
  136
  151
  168
  188
  211
  237
  266
  298
  333
  371
  413
  458
  507
  560
  616
  677
  736
  796
  860
  928
  1,001
  1,078
  1,160
  1,248
  1,340
  1,439
Change in working capital, $m
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
Cash from operations, $m
  105
  107
  113
  122
  133
  147
  164
  184
  207
  232
  261
  292
  327
  365
  406
  451
  500
  552
  608
  669
  727
  786
  850
  918
  990
  1,066
  1,148
  1,235
  1,327
  1,424
Maintenance CAPEX, $m
  -333
  -339
  -347
  -356
  -366
  -377
  -389
  -403
  -417
  -432
  -449
  -467
  -486
  -506
  -527
  -550
  -574
  -600
  -627
  -655
  -685
  -717
  -751
  -786
  -823
  -862
  -904
  -947
  -993
  -1,041
New CAPEX, $m
  -105
  -123
  -140
  -157
  -174
  -191
  -208
  -225
  -243
  -261
  -279
  -297
  -317
  -337
  -357
  -378
  -401
  -424
  -448
  -473
  -499
  -526
  -554
  -584
  -615
  -648
  -682
  -717
  -755
  -794
Cash from investing activities, $m
  -438
  -462
  -487
  -513
  -540
  -568
  -597
  -628
  -660
  -693
  -728
  -764
  -803
  -843
  -884
  -928
  -975
  -1,024
  -1,075
  -1,128
  -1,184
  -1,243
  -1,305
  -1,370
  -1,438
  -1,510
  -1,586
  -1,664
  -1,748
  -1,835
Free cash flow, $m
  -333
  -355
  -374
  -392
  -407
  -421
  -433
  -444
  -453
  -461
  -467
  -472
  -475
  -478
  -478
  -477
  -475
  -471
  -466
  -459
  -457
  -457
  -455
  -452
  -449
  -444
  -437
  -430
  -421
  -411
Issuance/(repayment) of debt, $m
  49
  58
  66
  74
  82
  90
  98
  106
  114
  122
  131
  140
  149
  158
  168
  178
  188
  199
  210
  222
  234
  247
  260
  274
  289
  304
  320
  337
  354
  373
Issuance/(repurchase) of shares, $m
  304
  317
  331
  343
  353
  362
  369
  374
  378
  380
  381
  380
  378
  374
  368
  360
  351
  340
  328
  313
  303
  294
  284
  272
  258
  243
  227
  208
  188
  165
Cash from financing (excl. dividends), $m  
  353
  375
  397
  417
  435
  452
  467
  480
  492
  502
  512
  520
  527
  532
  536
  538
  539
  539
  538
  535
  537
  541
  544
  546
  547
  547
  547
  545
  542
  538
Total cash flow (excl. dividends), $m
  20
  20
  22
  25
  28
  31
  33
  36
  39
  42
  45
  48
  51
  54
  57
  61
  64
  68
  72
  76
  80
  84
  89
  94
  99
  104
  109
  115
  121
  127
Retained Cash Flow (-), $m
  -304
  -317
  -331
  -343
  -353
  -362
  -369
  -374
  -378
  -380
  -381
  -380
  -378
  -374
  -368
  -360
  -351
  -340
  -328
  -313
  -322
  -339
  -358
  -377
  -397
  -418
  -440
  -463
  -487
  -512
Prev. year cash balance distribution, $m
  217
  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
  -67
  -297
  -308
  -318
  -325
  -331
  -336
  -338
  -339
  -338
  -336
  -332
  -327
  -320
  -311
  -300
  -287
  -273
  -256
  -237
  -242
  -255
  -269
  -283
  -299
  -314
  -331
  -348
  -366
  -385
Discount rate, %
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
  25.93
PV of cash for distribution, $m
  -63
  -261
  -252
  -240
  -225
  -208
  -190
  -171
  -152
  -133
  -115
  -97
  -81
  -66
  -53
  -42
  -32
  -24
  -18
  -12
  -9
  -7
  -5
  -4
  -3
  -2
  -1
  -1
  -1
  0
Current shareholders' claim on cash, %
  88.6
  78.3
  69.0
  60.8
  53.5
  47.1
  41.6
  36.7
  32.6
  29.0
  25.9
  23.2
  20.9
  19.0
  17.3
  15.8
  14.5
  13.5
  12.5
  11.8
  11.1
  10.5
  9.9
  9.5
  9.1
  8.7
  8.4
  8.2
  8.0
  7.8

Diamond Offshore Drilling, Inc. provides contract drilling services to the energy industry. As of December 31, 2016, the Company had a fleet of 24 offshore drilling rigs. As of December 31, 2016, its fleet consisted of four drillships, 19 semisubmersible rigs and one jack-up rig. Its fleet enables it to offer a range of services, primarily in the floater market, including ultra-deepwater, deepwater and mid-water. The principal markets for its offshore contract drilling services are the Gulf of Mexico, including the United States and Mexico; South America, principally offshore Brazil, and Trinidad and Tobago; Australia and Southeast Asia, including Malaysia, Indonesia and Vietnam; Europe, principally offshore the United Kingdom and Norway; East and West Africa; the Mediterranean, and the Middle East. The Company provides offshore drilling services to a customer base that includes independent oil and gas companies, and government-owned oil companies.

FINANCIAL RATIOS  of  Diamond Offshore Drilling, Inc. (DO)

Valuation Ratios
P/E Ratio -2.7
Price to Sales 0.6
Price to Book 0.3
Price to Tangible Book
Price to Cash Flow 1.6
Price to Free Cash Flow -168.9
Growth Rates
Sales Growth Rate -33.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21.4%
Cap. Spend. - 3 Yr. Gr. Rate -7.4%
Financial Strength
Quick Ratio 2
Current Ratio 0.3
LT Debt to Equity 52.8%
Total Debt to Equity 55.6%
Interest Coverage -3
Management Effectiveness
Return On Assets -4.3%
Ret/ On Assets - 3 Yr. Avg. -0.3%
Return On Total Capital -6.1%
Ret/ On T. Cap. - 3 Yr. Avg. -1.6%
Return On Equity -9.5%
Return On Equity - 3 Yr. Avg. -2.5%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 48.1%
Gross Margin - 3 Yr. Avg. 46.2%
EBITDA Margin 1.3%
EBITDA Margin - 3 Yr. Avg. 16.6%
Operating Margin -22.3%
Oper. Margin - 3 Yr. Avg. -4.7%
Pre-Tax Margin -29.3%
Pre-Tax Margin - 3 Yr. Avg. -8.9%
Net Profit Margin -23.3%
Net Profit Margin - 3 Yr. Avg. -7%
Effective Tax Rate 20.3%
Eff/ Tax Rate - 3 Yr. Avg. 24.4%
Payout Ratio 0%

DO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DO stock intrinsic value calculation we used $1083 million for the last fiscal year's total revenue generated by Diamond Offshore Drilling, Inc.. The default revenue input number comes from 0001 income statement of Diamond Offshore Drilling, 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 DO stock valuation model: a) initial revenue growth rate of 2% 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 6.3%, whose default value for DO is calculated based on our internal credit rating of Diamond Offshore Drilling, 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 Diamond Offshore Drilling, 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 DO stock the variable cost ratio is equal to 23.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $935 million in the base year in the intrinsic value calculation for DO 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 6.2% for Diamond Offshore Drilling, Inc..

Corporate tax rate of 27% is the nominal tax rate for Diamond Offshore Drilling, 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 DO 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 DO are equal to 482.3%.

Life of production assets of 15.7 years is the average useful life of capital assets used in Diamond Offshore Drilling, 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 DO is equal to 8.8%. 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 - $3584.653 million for Diamond Offshore Drilling, 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 137.868 million for Diamond Offshore Drilling, 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 Diamond Offshore Drilling, Inc. at the current share price and the inputted number of shares is $1.0 billion.

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