Comparable company analysis
As you can see in the table below, RPC (RES) is the largest company by market capitalization among our set of select OFS (oilfield services) companies. Forum Energy Technologies (FET) is the smallest of the lot by market capitalization.
Forum Energy Technologies’ (FET) EV (enterprise value) is approximately the sum of its equity value and net debt. When scaled by TTM (trailing 12-month) adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), it’s higher than its peers’ average. Adjusted EBITDA excludes extraordinary charges such as impairment and loss due to foreign exchange. RPC has the highest TTM EV-to-EBITDA multiple in our group.
Forward EV-to-EBITDA is a useful metric to gauge relative valuation. FET’s forward EV-to-EBITDA multiple expansion versus its TTM EV-to-EBITDA is higher than its peers’ average in our group. This is because the expected drop in FET’s adjusted operating earnings in fiscal 2016 is more extreme compared to that of its peers. FET is 0.09% of the iShares Russell 2000 Value ETF (IWN).
FET’s debt-to-equity multiple is lower than the group average. A lower multiple could indicate decreased credit riskiness. This is comforting, particularly when many OFS companies’ cash flows are unstable as crude oil prices fall. Nabors Industries’ (NBR) debt-to-equity ratio is the highest in our group. Read Market Realists’ article on the four top OFS companies in Which Oilfield Service Companies Can Break the Jinx?
Forum Energy Technologies’ valuation, expressed as TTM PE (price-to-earnings) multiple of 81.1x, is higher than its peer average in the group. Its forward PE multiple isn’t available, reflecting expected loss for FET in the next four quarters. Analysts also expect net loss for some of its peers in our set of OFS companies in the next four quarters. However, analysts expect a healthy 20% earnings growth for Forum Energy Technologies in the next three to five years.
In the final part of this series, we’ll see why Forum Energy Technologies underperformed the industry ETFs.