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Seadrill Partners: Analyst Recommendations and Valuation

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Wall Street analysts’ recommendations

Wall Street analysts have a consensus 12-month price target of $4.97 for Seadrill Partners (SDLP) compared to its current price of $3.61 as of April 8, 2016. Five analysts have given recommendations for the company’s stock as of the same date.

Of the five analysts surveyed, 20% recommended a “buy” for Seadrill Partners, 60% recommended a “hold,” and 20% offered a “sell” recommendation. Now, let’s look at the company’s valuations.

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Why EV-to-EBITDA?

Offshore drilling (XLE) (OIH) companies are best valued and compared using the EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple. A company’s forward EV-to-EBITDA multiple shows what investors are willing to pay for the next four quarters of estimated EBITDA.

For the offshore drilling industry, we believe that the EV-to-EBITDA multiple reflects the perceived riskiness of investing in offshore drilling companies as well as investors’ expectations for the industry.

Seadrill Partners’ EV-to-EBITDA multiple

As of April 11, 2016, Seadrill Partners was trading at an EV-to-EBITDA multiple of 4.4x compared to its three-year average of 5.8x. In the past three years, Seadrill Partners’ multiple reached a high of 7.7x and a low of 4.2x.

Peer valuations

Seadrill Partners’ (SDLP) current valuation multiple of 4.37x is close to Rowan Companies’ (RDC) valuation multiple of 4.44x, which is lower than its other peers. Diamond Offshore (DO), Ensco (ESV), Noble (NE), and Transocean (RIG) are trading at 7.3x, 5.45x, 6.7x, and 6.9x, respectively.

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