Comparable company analysis
As you can see in the table below, National Oilwell Varco (NOV) is the largest company by market capitalization among our set of select oilfield services and equipment (or OFS) companies here. NOV is followed by Cameron International (CAM).
FMC Technologies (FTI) has one of the lowest EV (approximately the summation of its equity value and net debt), when scaled by the trailing 12 months (or TTM) EBITDA in the group. All the companies compared here except Core Laboratories (CLB) have a TTM EV/EBITDA multiple clustered in a narrow band.
Forward EV/EBITDA is a useful metric to gauge relative valuation. FTI’s forward EV-to-EBITDA multiple expansion versus its TTM EV/EBITDA is lower than the peers’ average in our group here. This is because the expected drop in FTI’s operating earnings (or EBITDA) in fiscal 4Q15 is less extreme compared to those of its peers.
FTI makes up only 0.04% of the SPDR S&P 500 ETF (SPY), but for investors that would like energy exposure, energy makes up 6.5% of SPY.
FTI’s net-debt to EBITDA multiple is 0.57x. Weatherford International’s (WFT) net debt-to-EBITDA ratio is much higher, at 9.2x. A higher multiple could indicate a potential liquidity crunch, or insufficient cash to repay debt, particularly when crude oil prices are falling.
At 0.53x, FTI’s debt-to-equity multiple is lower than the peer average in the group. Lower debt-to-equity ratios indicate decreased risk associated with the management of debt levels.
Price-to-earnings ratio (or PE)
FMC Technologies’ valuation, expressed as TTM PE multiple, of 16.6x is lower than its peer average in the group. Its forward PE multiple expansion reflects a less extreme earnings decline for FTI compared to its peers, which typically reflects in the current valuation premium.
However, FTI’s current PE multiple discount reflects analysts’ expectations of sharper earnings decline versus its peers over a longer period. Sell-side analysts expect an earnings decline of ~12% for FTI in the next three to five years. Core Laboratories’ (CLB) estimated long-term earnings growth rate is highest, which explains its current PE multiple premium in the group.