Comparable company analysis
Schlumberger (SLB) is the largest company by market capitalization among our selected set oilfield equipment and services (or OFS) companies. FMC Technologies (FTI) is the smallest of the lot by market capitalization.
Halliburton’s (HAL) EV (enterprise value), when scaled by trailing-12-month adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), is higher than the peer average. Its adjusted EBITDA excludes extraordinary charges such as acquisition-related costs and asset impairments, which affected its 1Q16 earnings significantly.
Forward EV-to-EBITDA is useful in gauging relative valuation. HAL’s forward EV-to-EBITDA multiple expansion versus its adjusted trailing-12-month EV-to-EBITDA is lower than the peer average. This is because the expected fall in HAL’s adjusted EBITDA in 2016 is less extreme than the expected falls of its peers. This also explains HAL’s higher EV-to-EBITDA multiple compared to its peers’.
Halliburton’s debt levels
Halliburton’s debt-to-equity multiple is higher than the peer average. A higher multiple could indicate higher credit risk. This is concerning, particularly when crude oil prices are volatile. National Oilwell Varco’s (NOV) debt-to-equity ratio is the lowest in the peer group.
For a comparative analysis of the top OFS companies, you can read Market Realist’s The 4 Oilfield Service Giants: Which Ones Stand the Tallest?
Halliburton’s valuation expressed as a trailing-12-month PE multiple of ~36x is higher than the peer average. Its forward PE multiple is not meaningful, reflecting analysts’ expectations of losses in the next four quarters.
However, analysts expect healthy 13% earnings growth for Halliburton in the next three to five years. This could boost HAL’s valuation in the medium to long term.