Comparable company analysis
Cameron International (CAM) is the largest company by market capitalization among our set of select oilfield services equipment (or OFS) companies. Oil States International (OIS) is the smallest of the lot by market capitalization.
Noble Corporation’s (NE) enterprise value (or EV), when scaled by its trailing-12-month adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) is lower than the peer average. Adjusted EBITDA excludes extraordinary charges such as asset impairments and payments received on early contract terminations. Weatherford International (WFT) has the highest trailing-12-month EV-to-EBITDA multiple in the peer group.
Forward EV-to-EBITDA is a useful way to gauge relative valuation. NE’s forward EV-to-EBITDA multiple expansion versus its trailing-12-month EV-to-EBITDA is lower than the peer average. This is because the expected drop in NE’s adjusted operating earnings in 2016 is less extreme compared to the expected drops of its peers.
Noble Corporation’s net debt-to-EBITDA multiple is higher than the peer average. A higher multiple could indicate insufficient cash to repay debt. This is concerning, particularly when crude oil prices are falling.
Noble Corporation makes up 0.17% of the SPDR S&P MidCap 400 ETF (MDY). For a comparative analysis of the top OFS companies, read Market Realist’s series Which Oilfield Service Companies Can Break the Jinx?
Price-to-earnings (or PE) ratio
Noble Corporation’s valuation, expressed as a trailing-12-month PE multiple of 4.1x, is lower than the peer average. Its forward PE multiple expansion reflects a more extreme earnings fall compared to the falls of its peers. This is typically reflected in a current valuation discount.
However, analysts expect a healthy 15% earnings growth for Noble Corporation in the next three to five years. This could boost NE’s valuation in the medium to long term.