What Can We Learn from Denbury Resources’ Enterprise Value?



What is enterprise value?

So far, we’ve discussed Denbury Resources’ (DNR) financial statements objectively. Now let’s start looking at its metrics subjectively.

Let’s first look at Denbury Resources’ enterprise value (or EV). This is the complete value of a company, including the market value of its equity, or market capitalization, and its net debt, or debt less cash. Think of a company’s EV as the minimum amount you would be on the hook for if you decided to take over the entire company.

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Denbury Resources’ enterprise value

Denbury has seen its EV almost double over the last six years. Its market capitalization has remained almost unchanged near ~$2.8 billion. This means the company has been taking on more debt to fund its growth but hasn’t been able to deliver much value to shareholders between these two points in time.

But if we look at other years such as 2010, Denbury saw its EV hit almost $10 billion. This expansion was driven mainly by an increase in its market capitalization. However, since then, the market value of its shares has fallen by more than 60%. The bulk of this loss came in the aftermath of the energy rout of 2014.

Denbury currently trades at a market capitalization of ~$2.6 billion. In comparison, larger rivals Murphy Oil (MUR), Marathon Oil (MRO), and Occidental Petroleum (OXY) currently have market capitalizations of ~$8.3 billion, ~$17.5 billion, and ~$56 billion, respectively. These companies, along with Denbury, make up ~0.45% of the broad market SPDR S&P 500 ETF (SPY).

What are Denbury’s ratios?

Denbury Resources (DNR) has seen its total capital swell almost 3.5x in the last six years, driven mainly by a 4x jump in its debt. However, since the book value of its equity also expanded over these years as the company earned profits, its debt-to-total-capital ratio rose less sharply, from ~32% in 2008 to ~39% in 2014. However, its debt-to-EV ratio more than doubled from ~24% to ~57% between these years.

Looking at Denbury Resources’ EV-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) and EV-to-EBIT (earnings before interest and taxes) ratios, it looks like Denbury is currently trading at a discount to its historical valuations.


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