Comparable company analysis
As you can see in the table below, Weatherford International (WFT) is the largest company by market capitalization among our set of select OFS (oilfield services and equipment) companies. RPC (RES) is the smallest of the lot by market capitalization.
Comparing valuations: EV-to-EBITDA
FMC Technologies’ (FTI) EV (enterprise value, or the approximate summation of equity value and net debt), when scaled by TTM (trailing twelve months) adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), is the lowest in our group. Core Laboratories (CLB) has the highest TTM EV-to-EBITDA multiple in our group, whereas FMC Technologies makes up 0.04% of the SPDR S&P 500 ETF (SPY).
Forward EV-to-EBITDA is a useful metric for gauging relative valuation, and RES’s forward EV-to-EBITDA multiple expansion versus its adjusted TTM EV-to-EBITDA is the highest in our peer group. This is because the expected drop in RES’s adjusted operating EBITDA in fiscal 2016 was more extreme than those of its peers.
WFT’s debt to equity multiple is higher than the group average. A higher multiple could indicate increased credit riskiness. This is concerning, particularly when crude oil prices are falling. RPC, on the other hand, has no debt. For a comparative analysis of the top OFS companies, read Market Realist’s series Which Oilfield Service Companies Can Break the Jinx?
FTI’s valuation expressed as TTM PE (price-to-earnings) multiple, at 12.4x, is the lowest in the peer group. Its forward PE multiple expansion reflects a less extreme decline in earnings compared to peers, which typically reflects in current valuation discount over the peer average. Analysts expect Weatherford International and RPC to report negative earnings in the next four quarters.
In the next and final part, we’ll look at Wall Street analyst recommendations and target prices for these four OFS energy stocks.