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What Does Patterson-UTI Energy’s Current Valuation Imply?

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Patterson-UTI Energy’s earnings trend

Patterson-UTI Energy’s (PTEN) adjusted earnings were negative in fiscal 1Q16. Its share price increased ~16% from December 31, 2015, to March 31, 2016.

The forward PE (price-to-earnings) multiple considers the sell-side analysts’ consensus estimate of earnings for the next four quarters. Patterson-UTI Energy’s forward PE was not meaningful.

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Price-to-cash flow multiple

Analysts expect a significantly higher forward price-to-cash flow multiple for Patterson-UTI Energy as they expect a lower cash flow in the next four quarters.

Patterson-UTI Energy’s EV-to-EBITDA trend

Patterson-UTI Energy’s current valuation, expressed by the EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, increased between fiscals 4Q15 and 1Q16. Also, PTEN’s net debt decreased, while its share price increased 17%. In effect, the enterprise value, which is approximately the sum of its equity value and net debt, increased in fiscal 1Q16. PTEN’s EBITDA (earnings before interest, tax, depreciation, and amortization) decreased between fiscals 1Q15 and 1Q16. Therefore, the EV-to-EBITDA ratio increased. In comparison, Oceaneering International’s (OII) EV-to-EBITDA currently stands at 6.6x, lower than Patterson-UTI Energy’s 9.5x.

The forward EV-t0-EBITDA considers sell-side analysts’ consensus estimate of EBITDA for the fiscal year. Patterson-UTI Energy’s forward EV-to-EBITDA multiple for fiscal 2016 is higher than its current EV-to-EBITDA. This implies that analysts expect a decrease in PTEN’s EBITDA in fiscal 2016. Patterson-UTI Energy makes up 0.6% of the WisdomTree SmallCap Dividend ETF (DES). Next, we’ll compare Patterson-UTI Energy’s valuation with its peers’.

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