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Explaining National Oilwell Varco’s Historical Valuation

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National Oilwell Varco’s PE trend

National Oilwell Varco’s (NOV) price-to-earnings (or PE) multiple was range-bound between 2009 and 2015. In 2015, NOV’s adjusted earnings fell 53% compared to 2014.

On December 31, 2015, NOV’s share price was 49% lower than a year earlier. So, its steeper earnings fall compared to its share price fall caused its PE multiple to rise over 2014.

Forward PE considers sell-side analysts’ consensus estimate for earnings for the next four quarters. National Oilwell Varco’s forward PE is not available, reflecting analysts’ consensus expectation of negative earnings for the next four quarters.

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National Oilwell Varco’s price-to-cash flow multiple

National Oilwell Varco’s price-to-cash-flow (or PCF) multiple rose in 2015 compared to 2009. However, from 2014 to 2015, NOV’s share price fell more sharply than its CFO (cash from operations). So, its PCF multiple deflated in 2015 compared to 2014.

Going forward, analysts expect NOV’s PCF to fall, which reflects their expectations of higher cash flow in the next four quarters.

National Oilwell Varco’s EV-to-EBITDA trend

National Oilwell Varco’s historical valuation, expressed as an EV-to-EBITDA multiple, rose sharply from 2014 to 2015. From 2014 to 2015, National Oilwell Varco’s net debt fell. NOV’s share price fell more sharply during this period. In effect, NOV’s enterprise value (or EV), which is approximately the summation of its equity value and net debt, fell in 2015.

Although its EV fell, NOV’s trailing-12-month EBITDA (earnings before interest, tax, depreciation, and amortization) fell even more sharply in 2015 compared to a year ago. As a result, its EV-to-EBITDA ratio rose in 2015.

In comparison, NOV’s peer Oceaneering International’s (OII) EV-to-EBITDA stood at 6.6x by the end of 2015. Halliburton’s (HAL) EV-to-EBITDA was 20.6x by the end of 2015, while Dril-Quip’s (DRQ) EV-to-EBITDA was 6.7x by the end of 2015. National Oilwell Varco makes up 1.2% of the Energy Select Sector SPDR ETF (XLE).

Forward EV-to-EBITDA considers sell-side analysts’ consensus estimate of EBITDA for the fiscal year. National Oilwell Varco’s forward EV-to-EBITDA multiple for 2016 is lower compared to 2015.

Next, let’s discuss National Oilwell Varco’s valuation compared to those of its industry peers.

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