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.
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.