What Does Concho Resources’ Valuation Indicate?




In this part, we’ll discuss Concho Resources’ (CXO) valuation with respect to its peers.

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Concho Resources has an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of ~11x. Enterprise value is the summation of a company’s equity value and net debt. Apache (APA) has the lowest EV-to-EBITDA multiple of ~8x. It’s followed by Hess (HES) with an EV-to-EBITDA multiple of 9x. Cimarex Energy (XEC) has the highest enterprise multiple at ~15x.

The forward EV-to-EBITDA multiple uses market expectations for a company’s EBITDA for the current fiscal year. It’s a useful metric to gauge relative valuation.

So, Concho Resources’ valuation is in line with its peer average of ~10.8x.

Price-to-earnings ratio

Concho Resources’ trailing 12-month PE (price-to-earnings) multiple is ~267x. This figure isn’t available for its peers. All of them reported negative earnings in the previous 12 months.

Concho Resources’ forward PE multiple is ~114x. The lower forward price multiple indicates analysts’ expectations of strong earnings in the next 12 months.

So, Concho Resources could be a good investment for investors who would prefer to wait out the storm in energy prices. Prices remain volatile due to the Brexit outcome. It would also be a good long candidate for an investor who’s bullish on energy prices, especially given its performance when crude oil prices were rising.


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