Company Profile (excerpt from Reuters): QEP Resources, Inc., incorporated on May 17, 2010, is an independent crude oil and natural gas exploration and production company. The Company focuses on two regions of the United States: the Northern Region (primarily in North Dakota, Wyoming and Utah) and the Southern Region (primarily in Texas and Louisiana). The Company conducts exploration and production activities in North America’s hydrocarbon resource plays. The Company has an inventory of developed and undeveloped drilling locations in the Permian Basin in western Texas, the Williston Basin in North Dakota, Haynesville/Cotton Valley in northwestern Louisiana, the Uinta Basin in eastern Utah and other properties in Wyoming, Utah and Colorado. It sells gas volumes to wholesale marketers, industrial users, local distribution companies and utilities. It sells oil and natural gas liquid (NGL) volumes to refiners, marketers and other companies. As of December 31, 2016, the Company’s estimated proved reserves were approximately 731.4 million barrels of oil equivalent (MMboe).
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$2,900,088,097||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||0.24||Fail|
|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||-206.19%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||-13.31||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||0.80||Fail|
|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||0.24||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||-5.31||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Fail|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Fail|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||-$13.36|
|MG Value based on 0% Growth||-$7.83|
|Market Implied Growth Rate||-10.90%|
|% 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 low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. 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 $2.16 in 2014 to an estimated $-0.92 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into QEP Resources Inc revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -13.31, which was below the industry average of 87.76, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-15.62.
QEP Resources Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$15.62|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||3/1/2018|
|Total Current Assets||$149,800,000|
|Total Current Liabilities||$613,000,000|
|Shares Outstanding (Diluted Average)||240,900,000|
Earnings Per Share History
|Next Fiscal Year Estimate||-$0.82|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||-$0.92|
Other ModernGraham posts about the company
|QEP Resources Inc Valuation – July 2016 $QEP|
|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|
Other ModernGraham posts about related companies
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.