Is Noble Overvalued Compared to Historical Valuations?

Noble Energy’s (NBL) 1Q16 EV (enterprise value) to adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) ratio was ~10x. EV is the sum of a company’s market capitalization and net debt.

NBL’s 1Q16 EV/EBITDA multiple was slightly higher than its historical multiple of ~9.2x. This means that Noble was trading at a premium compared to its historical multiples. The market value of NBL’s equity fell by ~19% year-over-year. Its net debt increased from ~$4.5 billion in 1Q15 to ~$7.1 billion in 1Q16. The resulting EV showed a decline compared to last year’s levels. Combined with lower EBITDA levels, the resulting EV/EBITDA multiple rose. NBL’s trailing-12-month adjusted EBITDA as of 1Q16 was $2.1 billion compared to its 1Q15 trailing-12-month EBITDA of ~$2.7 billion.

In comparison, upstream companies such as Cabot Oil and Gas (COG) and EQT (EQT) saw lower EBITDA levels due to lower crude oil prices (USO). Their respective 1Q16 EBITDAs for the trailing 12 months fell by 53.3% and ~54.3%, respectively. On the other hand, Antero Resources (AR) saw its trailing-12-month EBITDA for 1Q16 rise by ~1%. Together, these companies make up 8.6% of the iShares U.S. Oil & Gas Exploration & Production ETF (IEO).

NBL’s forward EV/EBITDA multiple, which uses market expectations for a company’s EBITDA for the current year, is 9.7x. This means that NBL could continue to be overvalued compared to its historical levels.

Additionally, NBL’s lower forward multiple indicates that Wall Street expects its EBITDA to be higher this year compared to the last 12 months.

As of December 31, 2015, Noble Energy had net proved reserves of ~936 million barrels of oil equivalent. According to NBL’s 10-K filing, the discounted value of its reserve base at the end of 2015 was ~$6.7 billion compared to $14 billion at the end of 2014.

In the next part of this series, we’ll look at NBL’s relative valuation.