How Halliburton’s Valuation Stacks Up against Peers
Comparable company analysis
As you can see in the table below, Schlumberger (SLB) is the largest company by market capitalization among our set of select oilfield services and equipment (or OFS) companies here. Core Laboratories (CLB) is the smallest by market capitalization.
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EV to EBITDA
Halliburton’s (HAL) EV (approximately the sum of its equity value and net debt), when scaled by trailing-12-month (or TTM) adjusted EBITDA, is lower than the peer average in the group. Adjusted EBITDA excludes extraordinary charges like acquisition-related costs and asset impairments, which affected HAL’s earnings in 2016. HAL makes up 1.9% of the iShares Global Energy ETF (IXC). The Oil & Gas Equipment & Services industry makes up 9.7% of IXC.
Forward EV to EBITDA is a useful metric to gauge relative valuation. HAL’s forward EV-to-EBITDA multiple compression versus its adjusted TTM EV-to-EBITDA is steeper than the peer average in our group here. This higher multiple is because the expected rise in HAL’s adjusted operating earnings (or EBITDA) for the next 12 months is more extreme compared to that of peers, which typically reflects in a higher EV-to-EBITDA multiple compared to peers.
Halliburton’s debt-to-equity multiple is higher than the group average. A higher multiple could indicate higher financial risks, which is concerning, particularly when crude oil prices are volatile. National Oilwell Varco’s (NOV) debt-to-equity ratio is the lowest in our group. For a comparative analysis of the top OFS companies, read Market Realist’s article on Energy’s Price Recovery Prompts an Oilfield Services Revival.
Halliburton’s valuation, expressed as TTM PE (price-to-earnings) multiple, isn’t meaningful due to its negative adjusted earnings. HAL’s forward PE multiple is positive, reflecting analysts’ expectation of positive adjusted earnings in the next 12 months. Analysts expect a healthy 25% earnings growth for Halliburton in the next three to five years, which could boost HAL’s valuation in the medium to long term. Read more on oilfield services companies’ valuation in What Oilfield Services Companies’ Forward Multiples Indicate.
Next, we’ll discuss investors’ short interest in HAL.