Intrinsic value of Earthstone Energy, Inc. - ESTE

Previous Close

$6.63

  Intrinsic Value

$1.23

stock screener

  Rating & Target

str. sell

-81%

Previous close

$6.63

 
Intrinsic value

$1.23

 
Up/down potential

-81%

 
Rating

str. sell

We calculate the intrinsic value of ESTE 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 0.4

 

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, %
  15.60
  14.54
  13.59
  12.73
  11.95
  11.26
  10.63
  10.07
  9.56
  9.11
  8.70
  8.33
  7.99
  7.69
  7.42
  7.18
  6.96
  6.77
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.85
  5.76
  5.68
  5.62
  5.55
  5.50
Revenue, $m
  191
  218
  248
  280
  313
  348
  385
  424
  465
  507
  551
  597
  645
  695
  746
  800
  855
  913
  974
  1,036
  1,101
  1,169
  1,240
  1,314
  1,390
  1,470
  1,554
  1,641
  1,732
  1,828
Variable operating expenses, $m
  278
  319
  362
  407
  456
  507
  561
  617
  676
  737
  799
  866
  935
  1,007
  1,082
  1,160
  1,241
  1,324
  1,412
  1,503
  1,597
  1,695
  1,798
  1,905
  2,016
  2,132
  2,253
  2,380
  2,512
  2,650
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
  278
  319
  362
  407
  456
  507
  561
  617
  676
  737
  799
  866
  935
  1,007
  1,082
  1,160
  1,241
  1,324
  1,412
  1,503
  1,597
  1,695
  1,798
  1,905
  2,016
  2,132
  2,253
  2,380
  2,512
  2,650
Operating income, $m
  -88
  -100
  -113
  -128
  -143
  -159
  -175
  -193
  -211
  -230
  -248
  -269
  -290
  -313
  -336
  -360
  -385
  -411
  -438
  -466
  -496
  -526
  -558
  -591
  -626
  -662
  -699
  -739
  -780
  -823
EBITDA, $m
  -31
  -36
  -41
  -46
  -52
  -57
  -63
  -70
  -77
  -83
  -91
  -98
  -106
  -114
  -123
  -132
  -141
  -150
  -160
  -171
  -181
  -192
  -204
  -216
  -229
  -242
  -256
  -270
  -285
  -301
Interest expense (income), $m
  1
  4
  10
  17
  23
  31
  38
  46
  55
  64
  73
  82
  92
  103
  114
  125
  137
  149
  162
  175
  189
  203
  218
  233
  249
  266
  284
  302
  321
  341
  361
Earnings before tax, $m
  -92
  -110
  -130
  -151
  -173
  -197
  -222
  -247
  -275
  -303
  -331
  -361
  -393
  -426
  -461
  -497
  -534
  -573
  -613
  -655
  -699
  -744
  -791
  -840
  -892
  -945
  -1,001
  -1,060
  -1,120
  -1,184
Tax expense, $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
Net income, $m
  -92
  -110
  -130
  -151
  -173
  -197
  -222
  -247
  -275
  -303
  -331
  -361
  -393
  -426
  -461
  -497
  -534
  -573
  -613
  -655
  -699
  -744
  -791
  -840
  -892
  -945
  -1,001
  -1,060
  -1,120
  -1,184

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
  1,163
  1,332
  1,513
  1,706
  1,910
  2,125
  2,351
  2,587
  2,835
  3,093
  3,362
  3,642
  3,933
  4,235
  4,550
  4,877
  5,216
  5,569
  5,936
  6,318
  6,716
  7,129
  7,560
  8,009
  8,477
  8,966
  9,475
  10,008
  10,563
  11,144
Adjusted assets (=assets-cash), $m
  1,163
  1,332
  1,513
  1,706
  1,910
  2,125
  2,351
  2,587
  2,835
  3,093
  3,362
  3,642
  3,933
  4,235
  4,550
  4,877
  5,216
  5,569
  5,936
  6,318
  6,716
  7,129
  7,560
  8,009
  8,477
  8,966
  9,475
  10,008
  10,563
  11,144
Revenue / Adjusted assets
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
Average production assets, $m
  975
  1,117
  1,268
  1,430
  1,601
  1,781
  1,970
  2,169
  2,376
  2,592
  2,818
  3,052
  3,297
  3,550
  3,814
  4,088
  4,372
  4,668
  4,976
  5,296
  5,629
  5,976
  6,337
  6,713
  7,106
  7,515
  7,942
  8,388
  8,854
  9,341
Working capital, $m
  -72
  -83
  -94
  -106
  -119
  -132
  -146
  -161
  -176
  -192
  -209
  -226
  -244
  -263
  -283
  -303
  -324
  -346
  -369
  -393
  -417
  -443
  -470
  -498
  -527
  -557
  -589
  -622
  -657
  -693
Total debt, $m
  185
  298
  418
  547
  683
  826
  977
  1,135
  1,300
  1,472
  1,651
  1,838
  2,032
  2,234
  2,444
  2,662
  2,888
  3,124
  3,369
  3,623
  3,888
  4,164
  4,452
  4,751
  5,064
  5,389
  5,729
  6,084
  6,455
  6,842
Total liabilities, $m
  776
  889
  1,009
  1,138
  1,274
  1,417
  1,568
  1,726
  1,891
  2,063
  2,242
  2,429
  2,623
  2,825
  3,035
  3,253
  3,479
  3,715
  3,960
  4,214
  4,479
  4,755
  5,043
  5,342
  5,654
  5,980
  6,320
  6,675
  7,046
  7,433
Total equity, $m
  387
  444
  504
  568
  636
  708
  783
  862
  944
  1,030
  1,119
  1,213
  1,310
  1,410
  1,515
  1,624
  1,737
  1,855
  1,977
  2,104
  2,236
  2,374
  2,518
  2,667
  2,823
  2,986
  3,155
  3,333
  3,518
  3,711
Total liabilities and equity, $m
  1,163
  1,333
  1,513
  1,706
  1,910
  2,125
  2,351
  2,588
  2,835
  3,093
  3,361
  3,642
  3,933
  4,235
  4,550
  4,877
  5,216
  5,570
  5,937
  6,318
  6,715
  7,129
  7,561
  8,009
  8,477
  8,966
  9,475
  10,008
  10,564
  11,144
Debt-to-equity ratio
  0.480
  0.670
  0.830
  0.960
  1.070
  1.170
  1.250
  1.320
  1.380
  1.430
  1.480
  1.520
  1.550
  1.580
  1.610
  1.640
  1.660
  1.680
  1.700
  1.720
  1.740
  1.750
  1.770
  1.780
  1.790
  1.810
  1.820
  1.830
  1.840
  1.840
Adjusted equity ratio
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -92
  -110
  -130
  -151
  -173
  -197
  -222
  -247
  -275
  -303
  -331
  -361
  -393
  -426
  -461
  -497
  -534
  -573
  -613
  -655
  -699
  -744
  -791
  -840
  -892
  -945
  -1,001
  -1,060
  -1,120
  -1,184
Depreciation, amort., depletion, $m
  56
  64
  73
  82
  91
  101
  112
  123
  135
  147
  157
  171
  184
  198
  213
  228
  244
  261
  278
  296
  314
  334
  354
  375
  397
  420
  444
  469
  495
  522
Funds from operations, $m
  -36
  -46
  -58
  -69
  -82
  -96
  -110
  -125
  -140
  -156
  -173
  -191
  -209
  -228
  -248
  -268
  -290
  -312
  -335
  -359
  -384
  -410
  -437
  -465
  -495
  -526
  -558
  -591
  -626
  -662
Change in working capital, $m
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
Cash from operations, $m
  -26
  -36
  -46
  -57
  -69
  -82
  -96
  -110
  -125
  -140
  -156
  -173
  -191
  -209
  -228
  -248
  -269
  -290
  -312
  -335
  -359
  -384
  -410
  -438
  -466
  -495
  -526
  -558
  -591
  -626
Maintenance CAPEX, $m
  -47
  -54
  -62
  -71
  -80
  -89
  -99
  -110
  -121
  -133
  -145
  -157
  -171
  -184
  -198
  -213
  -228
  -244
  -261
  -278
  -296
  -314
  -334
  -354
  -375
  -397
  -420
  -444
  -469
  -495
New CAPEX, $m
  -132
  -142
  -152
  -161
  -171
  -180
  -189
  -198
  -207
  -216
  -225
  -235
  -244
  -254
  -264
  -274
  -285
  -296
  -308
  -320
  -333
  -347
  -361
  -376
  -392
  -409
  -427
  -446
  -466
  -487
Cash from investing activities, $m
  -179
  -196
  -214
  -232
  -251
  -269
  -288
  -308
  -328
  -349
  -370
  -392
  -415
  -438
  -462
  -487
  -513
  -540
  -569
  -598
  -629
  -661
  -695
  -730
  -767
  -806
  -847
  -890
  -935
  -982
Free cash flow, $m
  -205
  -232
  -260
  -290
  -320
  -352
  -385
  -418
  -453
  -489
  -527
  -565
  -606
  -647
  -690
  -735
  -782
  -830
  -881
  -933
  -988
  -1,046
  -1,105
  -1,168
  -1,233
  -1,301
  -1,373
  -1,448
  -1,526
  -1,608
Issuance/(repayment) of debt, $m
  106
  113
  121
  128
  136
  143
  151
  158
  165
  172
  179
  187
  194
  202
  210
  218
  227
  235
  245
  255
  265
  276
  287
  300
  312
  326
  340
  355
  371
  387
Issuance/(repurchase) of shares, $m
  145
  167
  190
  215
  241
  268
  297
  326
  357
  389
  420
  455
  490
  527
  566
  606
  647
  690
  735
  782
  831
  882
  935
  990
  1,048
  1,108
  1,171
  1,237
  1,306
  1,378
Cash from financing (excl. dividends), $m  
  251
  280
  311
  343
  377
  411
  448
  484
  522
  561
  599
  642
  684
  729
  776
  824
  874
  925
  980
  1,037
  1,096
  1,158
  1,222
  1,290
  1,360
  1,434
  1,511
  1,592
  1,677
  1,765
Total cash flow (excl. dividends), $m
  46
  48
  51
  54
  57
  60
  63
  66
  69
  72
  73
  76
  79
  82
  85
  88
  92
  96
  99
  103
  108
  112
  117
  122
  127
  132
  138
  144
  151
  157
Retained Cash Flow (-), $m
  -145
  -167
  -190
  -215
  -241
  -268
  -297
  -326
  -357
  -389
  -420
  -455
  -490
  -527
  -566
  -606
  -647
  -690
  -735
  -782
  -831
  -882
  -935
  -990
  -1,048
  -1,108
  -1,171
  -1,237
  -1,306
  -1,378
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
  -99
  -119
  -140
  -161
  -184
  -208
  -234
  -260
  -288
  -317
  -347
  -379
  -411
  -445
  -481
  -517
  -555
  -595
  -636
  -679
  -723
  -770
  -818
  -868
  -921
  -976
  -1,033
  -1,093
  -1,155
  -1,220
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
  -95
  -109
  -122
  -133
  -143
  -151
  -158
  -163
  -166
  -166
  -165
  -162
  -156
  -149
  -141
  -131
  -121
  -110
  -98
  -86
  -75
  -64
  -54
  -44
  -36
  -28
  -22
  -17
  -13
  -9
Current shareholders' claim on cash, %
  74.6
  55.7
  41.7
  31.2
  23.4
  17.5
  13.2
  9.9
  7.5
  5.7
  4.3
  3.2
  2.5
  1.9
  1.4
  1.1
  0.8
  0.6
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0

Earthstone Energy, Inc. is an independent oil and natural gas development and production company. The Company is also engaged in corporate mergers and the acquisition of oil and natural gas properties that have production and future development opportunities. Its operations are all in the upstream segment of the oil and natural gas industry and all its properties are onshore in the United States. The Company's reserve portfolio primarily consists of assets in the Midland Basin of west Texas, the Eagle Ford trend of south Texas and in the Williston Basin of North Dakota. As of December 31, 2016, the Company held approximately 5,900 net leasehold acres in the Midland Basin, located in Howard, Glasscock, Martin and Midland Counties. As of December 31, 2016, it also has approximately 21,000 net leasehold acres in the Eagle Ford trend of south Texas. In the Williston Basin of North Dakota, it had approximately 5,900 net leasehold acres, as of December 31, 2016.

FINANCIAL RATIOS  of  Earthstone Energy, Inc. (ESTE)

Valuation Ratios
P/E Ratio -2.7
Price to Sales 3.5
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 73.8
Price to Free Cash Flow -5.5
Growth Rates
Sales Growth Rate -10.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -52.5%
Cap. Spend. - 3 Yr. Gr. Rate 21.4%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 5%
Total Debt to Equity 5.8%
Interest Coverage -53
Management Effectiveness
Return On Assets -18.6%
Ret/ On Assets - 3 Yr. Avg. -21%
Return On Total Capital -23.6%
Ret/ On T. Cap. - 3 Yr. Avg. -27.7%
Return On Equity -24.9%
Return On Equity - 3 Yr. Avg. -29.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 52.4%
Gross Margin - 3 Yr. Avg. 63.7%
EBITDA Margin -64.3%
EBITDA Margin - 3 Yr. Avg. -93.2%
Operating Margin -109.5%
Oper. Margin - 3 Yr. Avg. -149.8%
Pre-Tax Margin -128.6%
Pre-Tax Margin - 3 Yr. Avg. -149.1%
Net Profit Margin -131%
Net Profit Margin - 3 Yr. Avg. -146.8%
Effective Tax Rate -1.9%
Eff/ Tax Rate - 3 Yr. Avg. -99.3%
Payout Ratio 0%

ESTE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ESTE stock intrinsic value calculation we used $165 million for the last fiscal year's total revenue generated by Earthstone Energy, Inc.. The default revenue input number comes from 0001 income statement of Earthstone Energy, 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 ESTE stock valuation model: a) initial revenue growth rate of 15.6% 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 ESTE is calculated based on our internal credit rating of Earthstone Energy, 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 Earthstone Energy, 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 ESTE stock the variable cost ratio is equal to 146.1%.

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 ESTE 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 5.6% for Earthstone Energy, Inc..

Corporate tax rate of 27% is the nominal tax rate for Earthstone Energy, 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 ESTE 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 ESTE are equal to 511.1%.

Life of production assets of 17.9 years is the average useful life of capital assets used in Earthstone Energy, 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 ESTE is equal to -37.9%. 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 - $334.64 million for Earthstone Energy, 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 64.170 million for Earthstone Energy, 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 Earthstone Energy, Inc. at the current share price and the inputted number of shares is $0.4 billion.

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