What Does Weatherford’s Forward Valuation Imply?
Weatherford’s 2017 EBITDA
Wall Street analysts expect Weatherford International (WFT) to report strong EBITDA (earnings before interest, tax, depreciation, and amortization) growth in 2017 compared 2016.
EBITDA is a measure of a company’s operating earnings. Read more about Weatherford International in Market Realist’s Did Weatherford International Meet 4Q16 Estimates?
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Analysts expect Weatherford International to post $713 million in adjusted EBITDA in 2017, a 1.8x rise over 2016. In comparison, analysts expect EBITDA for Schlumberger (SLB), the largest oilfield equipment and services (or OFS) company, to rise 16% in 2017 over 2016. WFT expects its growth to result from the following:
- increased service revenue in the Middle East and North Africa region
- higher rig revenue as three contracted rigs begin operations in Algeria
- cost savings following the sale of its loss-making US pressure pumping business
Weatherford’s EV-to-EBITDA multiple
WFT’s adjusted EBITDA fell significantly in 2016 over 2015. However, its EV (enterprise value) fell less sharply, causing its EV-to-EBITDA multiple to spike to ~200x in 2016. This was much higher than WFT’s trailing-seven-year average EV-to-EBITDA multiple, as we can see in the graph above.
What does Weatherford’s forward valuation imply?
In 2017, WFT’s forward EV-to-EBITDA multiple is lower than it was in 2016, reflecting analysts’ expectations of a much higher EBITDA. However, WFT is still dealing with various headwinds due to concerns over its high leverage and revenue losses from its offshore projects, which could drag its valuation down.
Read more about WFT’s recent issues in Did Weatherford International Violate a Debt Covenant?. WFT makes up 3.2% of the VanEck Vectors Oil Services ETF (OIH).
Next, we’ll discuss Baker Hughes’s expected EBITDA growth and relative valuation multiple in 2017.