Wall Street analysts’ target price
Wall Street analysts have a 12-month target price of $20.16 on the company—compared to the current price of $23.61 on May 4, 2016. A total of 35 analysts gave recommendations on Diamond Offshore (DO) stock. Only 6% of the analysts recommend a “buy,” 57% recommend a “hold,” and 37% recommend a “sell,” according to the Bloomberg consensus.
The forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is used to value and compare offshore drilling (OIH) companies. Diamond Offshore’s EV-to-EBITDA multiple is 7.71x as of May 4, 2016.
Offshore drilling (IYE) companies are best valued and compared using the EV-to-EBITDA 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 think that the EV-to-EBITDA multiple reflects the perceived riskiness of investing in offshore drilling companies as well as investors’ expectations for the industry’s outlook
Currently, Diamond Offshore is trading above its average three-year multiple. Its average EV-to-EBITDA multiple for the past three years was 6.83x. Its highest and lowest multiples in the past three years were 8.75x and 5.35x, respectively.
Comparing multiples with peers
Diamond Offshore’s current valuation multiple of 7.71x is higher than those of Rowan Companies (RDC), Noble (NE), and Seadrill Partners (SDLP). They have valuation multiples of 4.73x, 6.53x, and 4.3x, respectively. Only Pacific Drilling (PACD) is trading at a higher valuation multiple of 7.78x.