Stock Analysis on Net
Stock Analysis on Net

Diamondback Energy Inc. (NASDAQ:FANG)

This company has been moved to the archive! The financial data has not been updated since November 8, 2022.

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Diamondback Energy Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 26.90%
01 FCFE0 1,599
1 FCFE1 1,719 = 1,599 × (1 + 7.53%) 1,355
2 FCFE2 1,903 = 1,719 × (1 + 10.70%) 1,182
3 FCFE3 2,168 = 1,903 × (1 + 13.88%) 1,061
4 FCFE4 2,537 = 2,168 × (1 + 17.05%) 978
5 FCFE5 3,050 = 2,537 × (1 + 20.22%) 927
5 Terminal value (TV5) 54,910 = 3,050 × (1 + 20.22%) ÷ (26.90% – 20.22%) 16,685
Intrinsic value of Diamondback Energy Inc. common stock 22,187
 
Intrinsic value of Diamondback Energy Inc. common stock (per share) $126.07
Current share price $163.55

Based on: 10-K (reporting date: 2021-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.81%
Expected rate of return on market portfolio2 E(RM) 13.55%
Systematic risk of Diamondback Energy Inc. common stock βFANG 2.53
 
Required rate of return on Diamondback Energy Inc. common stock3 rFANG 26.90%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rFANG = RF + βFANG [E(RM) – RF]
= 4.81% + 2.53 [13.55% – 4.81%]
= 26.90%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Diamondback Energy Inc., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Dividend paid 312 236 112 37 —
Net income (loss) attributable to Diamondback Energy, Inc. 2,182 (4,517) 240 846 482
Revenue from contracts with customers 6,747 2,756 3,887 2,130 1,186
Total assets 22,898 17,619 23,531 21,596 7,771
Total Diamondback Energy, Inc. stockholders’ equity 12,088 8,794 13,249 13,699 5,255
Financial Ratios
Retention rate1 0.86 — 0.53 0.96 1.00
Profit margin2 32.34% -163.90% 6.17% 39.71% 40.65%
Asset turnover3 0.29 0.16 0.17 0.10 0.15
Financial leverage4 1.89 2.00 1.78 1.58 1.48
Averages
Retention rate 0.84
Profit margin 29.72%
Asset turnover 0.17
Financial leverage 1.75
 
FCFE growth rate (g)5 7.53%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

1 Retention rate = (Net income (loss) attributable to Diamondback Energy, Inc. – Dividend paid) ÷ Net income (loss) attributable to Diamondback Energy, Inc.
= (2,182 – 312) ÷ 2,182
= 0.86

2 Profit margin = 100 × Net income (loss) attributable to Diamondback Energy, Inc. ÷ Revenue from contracts with customers
= 100 × 2,182 ÷ 6,747
= 32.34%

3 Asset turnover = Revenue from contracts with customers ÷ Total assets
= 6,747 ÷ 22,898
= 0.29

4 Financial leverage = Total assets ÷ Total Diamondback Energy, Inc. stockholders’ equity
= 22,898 ÷ 12,088
= 1.89

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.84 × 29.72% × 0.17 × 1.75
= 7.53%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (28,785 × 26.90% – 1,599) ÷ (28,785 + 1,599)
= 20.22%

where:
Equity market value0 = current market value of Diamondback Energy Inc. common stock (US$ in millions)
FCFE0 = the last year Diamondback Energy Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Diamondback Energy Inc. common stock

FCFE growth rate (g) forecast

Diamondback Energy Inc., H-model

Microsoft Excel
Year Value gt
1 g1 7.53%
2 g2 10.70%
3 g3 13.88%
4 g4 17.05%
5 and thereafter g5 20.22%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 7.53% + (20.22% – 7.53%) × (2 – 1) ÷ (5 – 1)
= 10.70%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 7.53% + (20.22% – 7.53%) × (3 – 1) ÷ (5 – 1)
= 13.88%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 7.53% + (20.22% – 7.53%) × (4 – 1) ÷ (5 – 1)
= 17.05%