A Look at OFS Giants’ Relative Valuations
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 & equipment (or OFS) companies here. National Oilwell Varco (NOV) is the smallest of the lot by market capitalization.
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Schlumberger’s EV (or enterprise value) when scaled by trailing-12-month (or TTM) adjusted EBITDA is the lowest in our group. Baker Hughes, a GE Company (BHGE), has the highest TTM EV-to-EBITDA multiple in our group here. SLB makes up 20.7% of the iShares US Oil Equipment & Services ETF (IEZ). IEZ has fallen 8% in the past year compared to a 16% fall in SLB’s stock price. National Oilwell Varco’s (NOV) relative valuation expressed as an EV-to-EBITDA multiple is not meaningful as a result of its negative TTM earnings. EV is the sum of a company’s equity value and net debt.
BHGE’s forward EV-to-EBITDA multiple compression versus its current TTM EV-to-EBITDA is the steepest in our group here. This is because the expected rise in BHGE’s adjusted operating earnings (or EBITDA) in the next four quarters is more extreme compared to those of its peers. Analysts also expect Halliburton’s (HAL) and Schlumberger’s EBITDA to improve in the next four quarters.
Halliburton’s debt-to-equity (or leverage) multiple is higher than the group average. A higher multiple could indicate a higher debt load and more financial risk. BHGE’s and NOV’s leverage ratios are lower than the group average.
The forward price-to-earnings (or PE) multiples for all the four OFS companies discussed in this series are positive, which implies positive earnings in the next four quarters. Halliburton’s forward PE compression versus current PE ratio is higher than the group average, which indicates its earnings rise in the next four quarters could be more extreme compared to those of its peers.
Over the next three to five years, analysts expect SLB’s earnings to improve ~47%, which could boost SLB’s valuation going forward. The sell-side analysts also expect BHGE’s earnings to rise 2.4% over the next three to five years.
Next, we will discuss the correlation between these oilfield services companies and crude oil prices.