Comparable company analysis
As you can see in the table below, Baker Hughes (BHI) is the largest company by market capitalization among our set of select oilfield equipment and services (or OFS) companies. Core Laboratories (CLB) is the smallest of the lot by market capitalization.
National Oilwell Varco’s EV-to-EBITDA
National Oilwell Varco’s (NOV) EV (enterprise value), when scaled by its trailing-12-month adjusted EBITDA (earnings before interest, tax, depreciation, and amortiztion) is lower than the peer average. Adjusted EBITDA excludes extraneous charges such as asset impairments and restructuring.
Core Laboratories has the highest trailing-12-month EV-to-EBITDA multiple among its peers. National Oilwell Varco makes up 0.88% of the iShares North American Natural Resources ETF (IGE).
Forward EV-to-EBITDA is a useful metric in gauging relative valuation. NOV’s forward EV-to-EBITDA multiple expansion versus its adjusted trailing-12-month EV-to-EBITDA is considerably higher than the peer average. This is because the expected fall in NOV’s adjusted operating earnings in 2016 is more extreme than the expected falls of its peers. This also explains NOV’s low current EV-to-EBITDA multiple.
National Oilwell Varco’s debt levels
National Oilwell Varco’s debt-to-equity multiple is lower than the group average. A lower multiple could indicate decreased credit risk, which is comforting when crude oil prices are volatile. Weatherford International (or WFT) is the most leveraged in the 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?
National Oilwell Varco’s valuation, expressed as a trailing-12-month PE (price-to-earnings) multiple of 24.1x, is lower than the peer average. Its forward PE multiple, like some of its peers’, is not available, reflecting analysts’ expectations of negative earnings for the company in the next four quarters.
Analysts also expect a 9.4% earnings fall for National Oilwell Varco in the next three to five years. This could lower NOV’s valuation in the medium to long term.