Rice’s relative valuation
In the previous part of this series, we compared Rice Energy’s (RICE) EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple against its own historical levels. In this part, we’ll look at the company’s valuation against its peers’ multiples.
A peer group comparison shows that Rice’s forward EV-to-EBITDA multiple of ~15.1x is at a premium compared to its close competitors. For example, Antero Resources (AR) is currently trading at a forward EV-to-EBITDA multiple of ~11.6x. Gulfport Energy (GPOR) is trading at a multiple of 10.6x. WPX Energy (WPX) and QEP Resources (QEP) are trading at a lower multiple of ~6.3x and 5.8x, respectively.
Together, these companies make up ~10% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
You can credit Rice Energy’s valuation premium to its healthy credit position, strong hedge book, and production growth, coupled with its falling cost profile.
In terms of returns, Rice offers lower returns than most of its peers when we scale its profitability by its shareholder equity. This calculation is called ROE (return on equity). Rice’s ROE stands at about -28%, and this negative ROE results from the company’s negative net earnings or net loss. Among the company’s peers, Antero Resources offers the best ROE at ~1.6%.
Also, unlike QEP Resources, RICE and its other peers don’t pay dividends.