QEP Resources Inc Valuation – July 2016 $QEP

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how QEP Resources Inc (QEP) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): QEP Resources, Inc. (QEP) is a holding company with two subsidiaries, QEP Energy Company and QEP Marketing Company, which are engaged in two primary lines of business: oil and gas exploration and production (QEP Energy), and oil and gas marketing, operation of a gas gathering system and an underground gas storage facility, and corporate activities (QEP Marketing and Other). The Company operates through QEP Energy segment. QEP Energy Company conducts exploration and production (E&P) activities in several of North America’s hydrocarbon resource plays. The Company’s operations are focused in two geographic regions: the Northern Region (primarily in Wyoming, North Dakota and Utah) and the Southern Region (primarily in Texas and Louisiana) of the United States. The Company’s properties in its Northern Region include Pinedale, Williston Basin, Uinta Basin and Other Northern properties. Its Southern Region includes various properties, such as Permian Basin and Midcontinent operations.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of QEP – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $4,187,601,554 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.33 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 1.80% Fail
6. Moderate PEmg Ratio PEmg < 20 87.65 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.00 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.33 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.31 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

QEP value chart July 2016

EPSmg $0.21
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $3.03
MG Value based on 0% Growth $1.77
Market Implied Growth Rate 39.58%
Current Price $18.29
% of Intrinsic Value N/A

QEP Resources Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.23 in 2012 to an estimated $0.21 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 39.58% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

QEP Resources Inc scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

QEP charts July 2016

Net Current Asset Value (NCAV) -$14.55
Graham Number $0.00
PEmg 87.65
Current Ratio 2.33
PB Ratio 1.00
Current Dividend $0.08
Dividend Yield 0.44%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $1,065,200,000
Total Current Liabilities $456,600,000
Long-Term Debt $2,016,200,000
Total Assets $7,282,600,000
Intangible Assets $0
Total Liabilities $3,824,900,000
Shares Outstanding (Diluted Average) 189,700,000

Earnings Per Share History

Next Fiscal Year Estimate -$1.81
Dec2015 -$0.85
Dec2014 $4.36
Dec2013 $0.89
Dec2012 $0.72
Dec2011 $1.50
Dec2010 $1.84
Dec2009 $1.67

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.21
Dec2015 $1.25
Dec2014 $2.16
Dec2013 $1.15
Dec2012 $1.23
Dec2011 $1.32
Dec2010 $1.06
Dec2009 $0.56

Recommended Reading:

Other ModernGraham posts about the company

40 Companies in the Spotlight This Week – 2/21/15
QEP Resources Inc. Annual Valuation – 2015 $QEP
15 Companies in the Spotlight This Week – 2/8/14
QEP Resources (QEP) Annual Valuation

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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