Intrinsic value of Viper Energy Partners LP - VNOM

Previous Close

$29.54

  Intrinsic Value

$10.61

stock screener

  Rating & Target

str. sell

-64%

Previous close

$29.54

 
Intrinsic value

$10.61

 
Up/down potential

-64%

 
Rating

str. sell

We calculate the intrinsic value of VNOM 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 4.0

 

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, %
  22.20
  20.48
  18.93
  17.54
  16.28
  15.16
  14.14
  13.23
  12.40
  11.66
  11.00
  10.40
  9.86
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
Revenue, $m
  353
  425
  506
  595
  692
  796
  909
  1,029
  1,157
  1,292
  1,434
  1,583
  1,739
  1,902
  2,072
  2,249
  2,433
  2,625
  2,824
  3,031
  3,246
  3,469
  3,701
  3,943
  4,194
  4,455
  4,728
  5,011
  5,307
  5,615
Variable operating expenses, $m
  83
  100
  119
  140
  163
  187
  214
  242
  272
  304
  337
  372
  409
  447
  487
  529
  572
  617
  664
  712
  763
  815
  870
  927
  986
  1,047
  1,111
  1,178
  1,247
  1,320
Fixed operating expenses, $m
  17
  18
  18
  19
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  24
  25
  25
  26
  26
  27
  27
  28
  29
  29
  30
  31
  31
  32
  33
Total operating expenses, $m
  100
  118
  137
  159
  182
  206
  234
  262
  293
  325
  359
  394
  432
  470
  511
  553
  597
  642
  690
  738
  790
  842
  898
  956
  1,015
  1,077
  1,142
  1,209
  1,279
  1,353
Operating income, $m
  253
  308
  369
  436
  510
  590
  676
  767
  864
  967
  1,075
  1,189
  1,308
  1,432
  1,562
  1,697
  1,837
  1,983
  2,135
  2,292
  2,456
  2,626
  2,803
  2,987
  3,179
  3,378
  3,586
  3,802
  4,028
  4,263
EBITDA, $m
  325
  394
  472
  558
  651
  752
  861
  977
  1,100
  1,230
  1,367
  1,511
  1,662
  1,819
  1,983
  2,154
  2,332
  2,517
  2,709
  2,909
  3,117
  3,332
  3,557
  3,790
  4,033
  4,285
  4,548
  4,822
  5,108
  5,406
Interest expense (income), $m
  2
  23
  31
  51
  74
  99
  126
  156
  187
  221
  257
  295
  335
  377
  421
  467
  514
  564
  616
  670
  726
  784
  844
  907
  973
  1,040
  1,111
  1,185
  1,261
  1,341
  1,424
Earnings before tax, $m
  230
  277
  318
  363
  411
  464
  520
  580
  643
  710
  780
  854
  931
  1,011
  1,095
  1,182
  1,273
  1,367
  1,465
  1,566
  1,672
  1,782
  1,896
  2,015
  2,138
  2,267
  2,401
  2,541
  2,687
  2,839
Tax expense, $m
  62
  75
  86
  98
  111
  125
  140
  157
  174
  192
  211
  231
  251
  273
  296
  319
  344
  369
  395
  423
  451
  481
  512
  544
  577
  612
  648
  686
  725
  766
Net income, $m
  168
  202
  232
  265
  300
  339
  380
  423
  470
  518
  570
  623
  680
  738
  799
  863
  929
  998
  1,069
  1,143
  1,221
  1,301
  1,384
  1,471
  1,561
  1,655
  1,753
  1,855
  1,961
  2,072

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
  2,007
  2,418
  2,875
  3,379
  3,930
  4,525
  5,165
  5,849
  6,574
  7,341
  8,148
  8,995
  9,882
  10,808
  11,774
  12,780
  13,826
  14,914
  16,044
  17,219
  18,441
  19,710
  21,029
  22,401
  23,828
  25,314
  26,861
  28,473
  30,153
  31,905
Adjusted assets (=assets-cash), $m
  2,007
  2,418
  2,875
  3,379
  3,930
  4,525
  5,165
  5,849
  6,574
  7,341
  8,148
  8,995
  9,882
  10,808
  11,774
  12,780
  13,826
  14,914
  16,044
  17,219
  18,441
  19,710
  21,029
  22,401
  23,828
  25,314
  26,861
  28,473
  30,153
  31,905
Revenue / Adjusted assets
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
  0.176
Average production assets, $m
  1,459
  1,758
  2,091
  2,458
  2,858
  3,291
  3,756
  4,253
  4,781
  5,339
  5,926
  6,542
  7,187
  7,860
  8,562
  9,294
  10,055
  10,846
  11,668
  12,523
  13,411
  14,333
  15,293
  16,291
  17,329
  18,409
  19,534
  20,706
  21,928
  23,202
Working capital, $m
  44
  54
  64
  75
  87
  100
  115
  130
  146
  163
  181
  199
  219
  240
  261
  283
  307
  331
  356
  382
  409
  437
  466
  497
  528
  561
  596
  631
  669
  708
Total debt, $m
  563
  933
  1,345
  1,798
  2,294
  2,830
  3,406
  4,021
  4,674
  5,364
  6,090
  6,853
  7,651
  8,484
  9,353
  10,259
  11,200
  12,179
  13,197
  14,254
  15,353
  16,496
  17,683
  18,918
  20,202
  21,540
  22,932
  24,382
  25,894
  27,471
Total liabilities, $m
  1,806
  2,176
  2,588
  3,042
  3,537
  4,073
  4,649
  5,264
  5,917
  6,607
  7,333
  8,096
  8,894
  9,727
  10,597
  11,502
  12,443
  13,422
  14,440
  15,498
  16,596
  17,739
  18,926
  20,161
  21,446
  22,783
  24,175
  25,625
  27,137
  28,714
Total equity, $m
  201
  242
  288
  338
  393
  453
  517
  585
  657
  734
  815
  900
  988
  1,081
  1,177
  1,278
  1,383
  1,491
  1,604
  1,722
  1,844
  1,971
  2,103
  2,240
  2,383
  2,531
  2,686
  2,847
  3,015
  3,190
Total liabilities and equity, $m
  2,007
  2,418
  2,876
  3,380
  3,930
  4,526
  5,166
  5,849
  6,574
  7,341
  8,148
  8,996
  9,882
  10,808
  11,774
  12,780
  13,826
  14,913
  16,044
  17,220
  18,440
  19,710
  21,029
  22,401
  23,829
  25,314
  26,861
  28,472
  30,152
  31,904
Debt-to-equity ratio
  2.810
  3.860
  4.680
  5.320
  5.840
  6.250
  6.590
  6.870
  7.110
  7.310
  7.470
  7.620
  7.740
  7.850
  7.940
  8.030
  8.100
  8.170
  8.230
  8.280
  8.330
  8.370
  8.410
  8.450
  8.480
  8.510
  8.540
  8.560
  8.590
  8.610
Adjusted equity ratio
  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
  168
  202
  232
  265
  300
  339
  380
  423
  470
  518
  570
  623
  680
  738
  799
  863
  929
  998
  1,069
  1,143
  1,221
  1,301
  1,384
  1,471
  1,561
  1,655
  1,753
  1,855
  1,961
  2,072
Depreciation, amort., depletion, $m
  72
  87
  103
  121
  141
  162
  185
  210
  236
  263
  292
  322
  354
  387
  422
  458
  495
  534
  575
  617
  661
  706
  753
  802
  854
  907
  962
  1,020
  1,080
  1,143
Funds from operations, $m
  240
  289
  335
  386
  441
  501
  565
  633
  705
  781
  862
  946
  1,034
  1,125
  1,221
  1,321
  1,424
  1,532
  1,644
  1,760
  1,881
  2,007
  2,137
  2,273
  2,415
  2,562
  2,715
  2,875
  3,042
  3,215
Change in working capital, $m
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
Cash from operations, $m
  232
  280
  325
  375
  429
  487
  550
  618
  689
  764
  844
  927
  1,014
  1,105
  1,200
  1,298
  1,401
  1,508
  1,619
  1,734
  1,854
  1,979
  2,108
  2,243
  2,383
  2,529
  2,681
  2,839
  3,004
  3,176
Maintenance CAPEX, $m
  -59
  -72
  -87
  -103
  -121
  -141
  -162
  -185
  -210
  -236
  -263
  -292
  -322
  -354
  -387
  -422
  -458
  -495
  -534
  -575
  -617
  -661
  -706
  -753
  -802
  -854
  -907
  -962
  -1,020
  -1,080
New CAPEX, $m
  -265
  -299
  -333
  -367
  -400
  -433
  -465
  -497
  -528
  -558
  -587
  -616
  -645
  -674
  -702
  -731
  -761
  -791
  -822
  -855
  -888
  -923
  -959
  -998
  -1,038
  -1,080
  -1,125
  -1,172
  -1,222
  -1,274
Cash from investing activities, $m
  -324
  -371
  -420
  -470
  -521
  -574
  -627
  -682
  -738
  -794
  -850
  -908
  -967
  -1,028
  -1,089
  -1,153
  -1,219
  -1,286
  -1,356
  -1,430
  -1,505
  -1,584
  -1,665
  -1,751
  -1,840
  -1,934
  -2,032
  -2,134
  -2,242
  -2,354
Free cash flow, $m
  -92
  -91
  -95
  -95
  -93
  -86
  -77
  -64
  -48
  -29
  -6
  19
  47
  77
  110
  145
  182
  221
  262
  305
  349
  395
  443
  492
  543
  595
  649
  705
  763
  822
Issuance/(repayment) of debt, $m
  152
  370
  412
  454
  495
  536
  576
  615
  653
  690
  727
  762
  798
  834
  869
  905
  942
  979
  1,018
  1,058
  1,099
  1,142
  1,187
  1,235
  1,285
  1,337
  1,392
  1,451
  1,512
  1,577
Issuance/(repurchase) of shares, $m
  49
  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  
  201
  370
  412
  454
  495
  536
  576
  615
  653
  690
  727
  762
  798
  834
  869
  905
  942
  979
  1,018
  1,058
  1,099
  1,142
  1,187
  1,235
  1,285
  1,337
  1,392
  1,451
  1,512
  1,577
Total cash flow (excl. dividends), $m
  109
  279
  317
  359
  403
  450
  499
  551
  605
  661
  720
  781
  845
  911
  979
  1,050
  1,124
  1,201
  1,280
  1,362
  1,448
  1,537
  1,630
  1,727
  1,827
  1,932
  2,041
  2,155
  2,275
  2,399
Retained Cash Flow (-), $m
  -217
  -41
  -46
  -50
  -55
  -60
  -64
  -68
  -73
  -77
  -81
  -85
  -89
  -93
  -97
  -101
  -105
  -109
  -113
  -118
  -122
  -127
  -132
  -137
  -143
  -149
  -155
  -161
  -168
  -175
Prev. year cash balance distribution, $m
  17
  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
  -91
  238
  271
  308
  348
  390
  435
  482
  532
  585
  640
  697
  756
  818
  883
  950
  1,019
  1,092
  1,167
  1,245
  1,326
  1,410
  1,498
  1,589
  1,684
  1,783
  1,887
  1,994
  2,107
  2,224
Discount rate, %
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  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
  32.11
PV of cash for distribution, $m
  -85
  203
  212
  218
  221
  221
  217
  210
  199
  187
  172
  155
  138
  120
  102
  86
  70
  57
  44
  34
  26
  19
  13
  9
  6
  4
  3
  2
  1
  1
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Viper Energy Partners LP is engaged in owning, acquiring and exploiting oil and natural gas properties in North America. The Company's assets are located in the Permian Basin of West Texas. As of December 31, 2016, the Permian Basin consisted of approximately 85,000 square miles. As of December 31, 2016, its assets consisted of mineral interests underlying 107,568 gross acres in the Permian Basin. As of December 31, 2016, there were 545 vertical wells and 190 horizontal wells producing on this acreage. As of December 31, 2016, its estimated proved oil and natural gas reserves of its assets was 31,435 thousand barrels of crude oil equivalent (MBOE). As of December 31, 2016, the Company's proved reserves were approximately 68% oil, 18% natural gas liquids and 14% natural gas. In addition to its mineral interests, the Company owns a minor equity interest in an entity that owns mineral, overriding royalty, net profits, leasehold and other similar interests.

FINANCIAL RATIOS  of  Viper Energy Partners LP (VNOM)

Valuation Ratios
P/E Ratio -235.8
Price to Sales 32.8
Price to Book 4.7
Price to Tangible Book
Price to Cash Flow 37.6
Price to Free Cash Flow 37.6
Growth Rates
Sales Growth Rate 5.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio 0.5
LT Debt to Equity 22.1%
Total Debt to Equity 22.1%
Interest Coverage -5
Management Effectiveness
Return On Assets -1.5%
Ret/ On Assets - 3 Yr. Avg. 4.2%
Return On Total Capital -1.8%
Ret/ On T. Cap. - 3 Yr. Avg. 2.9%
Return On Equity -2.1%
Return On Equity - 3 Yr. Avg. 4.6%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 93.7%
Gross Margin - 3 Yr. Avg. 92.7%
EBITDA Margin 26.6%
EBITDA Margin - 3 Yr. Avg. 67.6%
Operating Margin -11.4%
Oper. Margin - 3 Yr. Avg. 24.8%
Pre-Tax Margin -13.9%
Pre-Tax Margin - 3 Yr. Avg. 18.8%
Net Profit Margin -13.9%
Net Profit Margin - 3 Yr. Avg. 18.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio -590.9%

VNOM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VNOM stock intrinsic value calculation we used $289 million for the last fiscal year's total revenue generated by Viper Energy Partners LP. The default revenue input number comes from 0001 income statement of Viper Energy Partners LP. 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 VNOM stock valuation model: a) initial revenue growth rate of 22.2% 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 7.8%, whose default value for VNOM is calculated based on our internal credit rating of Viper Energy Partners LP, 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 Viper Energy Partners LP.
    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 VNOM 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 $17 million in the base year in the intrinsic value calculation for VNOM 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 5.5% for Viper Energy Partners LP.

Corporate tax rate of 27% is the nominal tax rate for Viper Energy Partners LP. 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 VNOM 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 VNOM are equal to 413.2%.

Life of production assets of 20.3 years is the average useful life of capital assets used in Viper Energy Partners LP 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 VNOM is equal to 12.6%. 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 - $0 million for Viper Energy Partners LP - 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 134.958 million for Viper Energy Partners LP 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 Viper Energy Partners LP at the current share price and the inputted number of shares is $4.0 billion.

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