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How Do APA, HES, MRO, and DVN Compare in Terms of Valuation?

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Relative valuation

Apache (APA) had the highest EV (enterprise value) to adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in 4Q15 at 8.44x. EV is the summation of a company’s market capitalization and net debt. APA’s stock has fallen 17% year-over-year while its net debt levels have declined by 30%. However, its adjusted trailing-12-month EBITDA fell by 78%. This helped push the ratio higher than last year’s levels. APA’s forward EV/EBITDA ratio is 11.8x.

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Hess’s (HES) EV to adjusted EBITDA in 4Q15 was 7.9x. HES’s stock has fallen 26% year-over-year while its net debt levels have mostly remained the same. Its adjusted trailing-12-month EBITDA in 4Q15 was ~54% lower than 4Q14 levels. This explains the higher ratio versus 4Q14. Hess’s forward EV/EBITDA multiple is 18.3x.

EV to adjusted EBITDA for Devon Energy (DVN) in 4Q15 was ~6.9x. Its stock has fallen 57% year-over-year while its net debt has increased by 10%. DVN’s adjusted trailing-12-month EBITDA fell by 43%, which helped push the ratio higher than last year’s levels. The forward EV/EBITDA multiple for DVN is ~11.9x.

Meanwhile, Marathon Oil’s (MRO) EV to adjusted EBITDA in 4Q15 was ~6.5x. Its stock has fallen ~57% year-over-year while its net debt has increased by 30%. MRO’s adjusted trailing-12-month EBITDA declined by ~48%, which helped push the ratio higher than last year’s levels. The forward EV/EBITDA multiple for MRO is ~12x.

The higher forward EV/EBITDA multiples for all four upstream companies imply that Wall Street expects their respective EBITDAs to fall this fiscal year compared to the last 12 months. All these companies make up 4.6% of the Energy Select Sector SPDR ETF (XLE).

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