Patterson-UTI Energy’s Valuation: Reading the Implications
Patterson-UTI Energy’s PE trend
Patterson-UTI Energy’s (PTEN) share price rose ~79% between December 31, 2015, and December 30, 2016. But PTEN’s adjusted earnings were negative in 2016, so PTEN’s PE (price-to-earnings) multiple wasn’t meaningful in 2016.
The forward PE ratio considers the sell-side analysts’ consensus estimate of earnings for the next four quarters. Patterson-UTI Energy’s forward PE ratio is also not meaningful, reflecting analysts’ expectations of negative earnings over the next four quarters.
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Analysts expect a higher forward PCF (price-to-cash flow) multiple for Patterson-UTI Energy, which reflects analysts’ expectations of lower cash flow over the next four quarters. Patterson-UTI Energy’s PCF ratio had moved within a notable range for eight years until 2016.
Patterson-UTI Energy’s current valuation, as expressed by EV-to-EBITDA multiple, rose in 2016 over 2015. From 2015 to 2016, PTEN’s net debt decreased, while its stock price increased sharply. In effect, then, its EV (enterprise value, or approximately the summation of its equity value and net debt) rose in 2016. PTEN’s TTM (trailing-12-month) EBITDA (earnings before interest, tax, depreciation, and amortization) fell in 2016 over the previous year, so its EV-to-EBITDA ratio increased sharply in 2016.
Remember, the forward EV-to-EBITDA considers the sell-side analysts’ consensus estimate of EBITDA for the next four quarters. Patterson-UTI Energy’s forward EV-to-EBITDA multiple for 2017 is lower than its current EV-to-EBITDA multiple, which implies an expectation of an increase in PTEN’s EBITDA in 2017. This figure also explains PTEN’s higher current EV-to-EBITDA multiple, as compared to its eight-year average.
Peer EV-to-EBITDA multiples
By comparison, Schlumberger’s (SLB) EV-to-EBITDA was 18.5x in 2016. You can read more on SLB’s valuation in Market Realist’s Schlumberger’s Valuation Compared to Its Peers in 2017.
Weatherford International’s (WFT) EV-to-EBITDA multiple was ~200.0x in 2016, as a result of its low adjusted EBITDA. For more on WFT’s valuation, check out Market Realist’s What Does Weatherford’s Relative Valuation Suggest?
Notably, Patterson-UTI Energy makes up 2.7% of the iShares US Oil Equipment & Services ETF (IEZ).
Now let’s compare Patterson-UTI Energy’s valuation with those of its industry peers.