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 the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Diamondback Energy Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 22.14%
01 FCFF0 2,678
1 FCFF1 2,667 = 2,678 × (1 + -0.42%) 2,183
2 FCFF2 2,749 = 2,667 × (1 + 3.10%) 1,843
3 FCFF3 2,931 = 2,749 × (1 + 6.62%) 1,609
4 FCFF4 3,229 = 2,931 × (1 + 10.14%) 1,451
5 FCFF5 3,670 = 3,229 × (1 + 13.66%) 1,350
5 Terminal value (TV5) 49,245 = 3,670 × (1 + 13.66%) ÷ (22.14% – 13.66%) 18,120
Intrinsic value of Diamondback Energy Inc. capital 26,556
Less: Debt (fair value) 7,148
Intrinsic value of Diamondback Energy Inc. common stock 19,408
 
Intrinsic value of Diamondback Energy Inc. common stock (per share) $110.28
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.

Weighted Average Cost of Capital (WACC)

Diamondback Energy Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 28,785 0.80 26.90%
Debt (fair value) 7,148 0.20 2.94% = 3.77% × (1 – 21.96%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 175,998,577 × $163.55
= $28,784,567,268.35

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (21.70% + 19.10% + 13.00% + 21.00% + 35.00%) ÷ 5
= 21.96%

WACC = 22.14%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Diamondback Energy Inc., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Interest expense, less capitalized interest 189 195 169 77 39
Net income (loss) attributable to Diamondback Energy, Inc. 2,182 (4,517) 240 846 482
 
Effective income tax rate (EITR)1 21.70% 19.10% 13.00% 21.00% 35.00%
 
Interest expense, less capitalized interest, after tax2 148 158 147 61 25
Add: Dividend paid 312 236 112 37 —
Interest expense (after tax) and dividends 460 394 259 98 25
 
EBIT(1 – EITR)3 2,330 (4,359) 387 907 507
 
Current maturities of long-term debt 45 191 — — —
Long-term debt, excluding current maturities 6,642 5,624 5,371 4,464 1,477
Total Diamondback Energy, Inc. stockholders’ equity 12,088 8,794 13,249 13,699 5,255
Total capital 18,775 14,609 18,620 18,164 6,732
Financial Ratios
Retention rate (RR)4 0.80 — 0.33 0.89 0.95
Return on invested capital (ROIC)5 12.41% -29.84% 2.08% 4.99% 7.54%
Averages
RR 0.74
ROIC -0.56%
 
FCFF growth rate (g)6 -0.42%

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).

1 See details »

2021 Calculations

2 Interest expense, less capitalized interest, after tax = Interest expense, less capitalized interest × (1 – EITR)
= 189 × (1 – 21.70%)
= 148

3 EBIT(1 – EITR) = Net income (loss) attributable to Diamondback Energy, Inc. + Interest expense, less capitalized interest, after tax
= 2,182 + 148
= 2,330

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,330 – 460] ÷ 2,330
= 0.80

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,330 ÷ 18,775
= 12.41%

6 g = RR × ROIC
= 0.74 × -0.56%
= -0.42%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (35,933 × 22.14% – 2,678) ÷ (35,933 + 2,678)
= 13.66%

where:

Total capital, fair value0 = current fair value of Diamondback Energy Inc. debt and equity (US$ in millions)
FCFF0 = the last year Diamondback Energy Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Diamondback Energy Inc. capital

FCFF growth rate (g) forecast

Diamondback Energy Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -0.42%
2 g2 3.10%
3 g3 6.62%
4 g4 10.14%
5 and thereafter g5 13.66%

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)
= -0.42% + (13.66% – -0.42%) × (2 – 1) ÷ (5 – 1)
= 3.10%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -0.42% + (13.66% – -0.42%) × (3 – 1) ÷ (5 – 1)
= 6.62%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -0.42% + (13.66% – -0.42%) × (4 – 1) ÷ (5 – 1)
= 10.14%