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Dril-Quip’s Historical Valuation

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Dril-Quip’s PE trend

Dril-Quip’s (DRQ) PE (price-to-earnings) multiple decreased gradually from fiscal 2010 until fiscal 2015. In fiscal 2015, DRQ’s adjusted earnings decreased ~3% compared to fiscal 2014. As of December 31, 2015, DRQ’s share price was 23% lower than the year before. A steeper share price fall relative to earnings decline caused PE multiple contraction in fiscal 2015 over fiscal 2014.

Forward PE considers the sell-side analysts’ consensus estimate of earnings for the next four quarters. Dril-Quip’s forward PE is higher than its fiscal 2015 multiple, which reflects analysts’ expectations of an earnings decline over the next four quarters. Dril-Quip is 0.17% of the Vanguard Energy ETF (VDE).

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Dril-Quip’s price-to-cash-flow multiple

Dril-Quip’s PCF (price-to-cash-flow) moved in a range before it fell sharply in fiscal 2015. From fiscal 2014 to fiscal 2015, DRQ’s cash flow from operations increased, while its share price decreased. Going forward, analysts expect PCF to rise, which reflects analysts’ expectations of lower cash flow in the next four quarters.

Dril-Quip’s EV-EBITDA trend

Dril-Quip’s historical valuation, expressed as EV-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, was moving in a range from fiscal 2009 to fiscal 2013 before it fell in fiscal 2015.

DRQ has zero debt. Its cash and marketable securities amounted to $381 million as of December 31, 2015, leading to negative net debt.

DRQ’s share price decreased from fiscal 2014 to fiscal 2015. In effect, EV, which is approximately the sum of its equity value and net debt, decreased significantly in fiscal 2015 compared to a year ago. DRQ’s EBITDA also decreased, but to a lesser extent, during the same period. So the EV-EBITDA ratio decreased in fiscal 2015. In comparison, Cameron International’s (CAM) EV-EVITDA ratio currently stands at ~16.5x.

Forward EV-EBITDA considers the sell-side analysts’ consensus estimate of EBITDA for the fiscal year. Dril-Quip’s forward EV-EBITDA multiple for fiscal 2016 is higher than fiscal 2015. This implies analysts’ expectation of a lower EBITDA for DRQ in fiscal 2016.

In the next part of the series, we’ll look at Dril-Quip’s valuation compared to its industry peers.

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