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Nabors Industries’ Historical Valuation: Does It Matter?

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Nabors Industries’ PE trend

Nabors Industries’ (NBR) PE (price-to-earnings) multiple fluctuated between 2009 and 2014. On December 31, 2015, NBR’s share price was 34% lower than a year earlier. However, in 2015, its adjusted earnings turned negative. NBR’s PE multiple wasn’t meaningful in 2015 due to its negative earnings.

In fiscal 1Q16, NBR’s share price increased 8% compared to fiscal 4Q15. Its adjusted net loss deteriorated even further during the same period. So the PE multiple wasn’t meaningful in fiscal 1Q16.

Forward PE considers the sell-side analyst consensus estimate of earnings for the next four quarters. Nabors Industries’ forward PE isn’t available, reflecting analysts’ expectations of negative earnings for the next four quarters.

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Nabors Industries’ price-to-cash-flow multiple

Nabors Industries’ price-to-cash flow (or PCF) declined in 2015 compared to 2009. From 2014 to 2015, NBR’s cash flow from operations declined more sharply compared to NBR’s share price. So the PCF multiple inflated in 2015 compared to 2014. Going forward, analysts expect PCF to rise, which reflects analyst expectations of lower cash flow in the next four quarters.

Nabors Industries’ EV-to-EBITDA trend

Nabors Industries’ historical valuation, expressed as an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, declined sharply from 2014 to 2015 when net debt decreased. NBR’s share price fell more sharply during this period. In effect, EV, which is approximately the sum of its equity value and net debt, declined in 2015.

In addition, NBR’s TTM (trailing 12-month) EBITDA increased in 2015 compared to a year before. So the EV-to-EBITDA ratio fell sharply in 2015.

In fiscal 1Q16, NBR’s EV increased as a result of the rise in its share price. Its TTM EBITDA, however, declined in fiscal 1Q16 over a quarter ago. So the EV-to-EBITDA multiple increased in fiscal 1Q16 compared to fiscal 4Q15.

In comparison, NBR’s peer Oceaneering International’s (OII) EV-to-EBITDA stood at 6.6x at the end of fiscal 1Q16. Nabors Industries is 2.5% of the iShares US Oil Equipment & Services ETF (IEZ).

Forward EV-to-EBITDA considers the sell-side analyst consensus estimate of EBITDA for the fiscal year. Nabors Industries’ forward EV-to-EBITDA multiple for fiscal 2016 is higher, indicating a lower EBITDA in fiscal 2016.

Next, we’ll take a look at Nabors Industries’ valuation compared to its industry peers.

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