Diamondback Energy’s current enterprise multiple
On June 24, 2016, Diamondback Energy’s (FANG) EV-to-adjusted EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] ratio was ~16x. This equals the company’s historical average EV-to-EBITDA ratio of ~16x during the past 11 quarters.
The EV-to-EBITDA ratio is also referred to as an enterprise multiple. It is preferred over the PE (price-to-earnings) ratio, especially for upstream companies, because it takes a company’s debt into account. In the enterprise multiple, enterprise value is the sum of a company’s market capitalization and the market value of debt, minus total cash and cash equivalents.
Diamondback Energy’s forward enterprise multiple
In the weeks leading to the Brexit referendum, Diamondback Energy (FANG) traded at its lifetime high of $96.01. However, the Brexit outcome saw the company’s stock fall to $87.28.
The price sell-off also translated to the decline in the premium on its forward EV-to-EBITDA. After the Brexit outcome, Diamondback Energy was trading at a forward enterprise multiple of ~23x. This is lower than FANG’s pre-Brexit forward enterprise multiple of ~25x.
For 2016, Wall Street analysts estimate that FANG’s EBITDA will be ~$281 million, or lower by ~44% YoY (year-over-year). Among the other upstream companies, Wall Street analysts also expect Denbury Resources (DNR), Devon Energy (DVN), and Encana (ECA) to post ~64%, ~60%, and ~48% lower YoY EBITDA figures, respectively, in 2016.
The Energy Select Sector SPDR ETF (XLE) generally invests at least 95% of its total assets in oil and gas companies.