As of 2Q16, Stone Energy’s (SGY) EV-to-adjusted EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio has come in around ~8.5x, which is much higher than its historical average of ~3.9x over the past five years.
SGY’s EV-to-EBITDA ratio has been increasing during the past three quarters, mainly due to the increased EV and the fall in EBITDA during the same period. From 3Q15 to 2Q16, Stone Energy’s enterprise value increased from ~$1.25 billion to ~$1.31 billion, whereas its trailing-12-month EBITDA decreased from ~$315 million to ~$155 million during the same period.
Forward enterprise multiple
Stone Energy’s forward EV-to-EBITDA multiple is ~6x, which is higher than its historical average of ~3.9x. For 2016, Wall Street analysts estimate that Stone Energy’s EBITDA will be lower by ~48% YoY (year-over-year) at ~$159 million.
The EV-to-EBITDA ratio is also referred to as an enterprise multiple and is preferred over the PE (price-to-earnings) ratio, especially for upstream companies, because it takes into account the debt of a company. In the enterprise multiple, enterprise value is the summation of market capitalization and market value of debt minus total cash and cash equivalents.
Other upstream players
By comparison, upstream companies W&T Offshore (WTI), Pioneer Natural Resources (PXD), and Bonanza Creek Energy (BCEI) have enterprise multiples of ~9x, ~17x, and ~6x, respectively. The Direxion Daily Energy Bull 3X ETF (ERX) is a leveraged ETF that invests in domestic companies from the energy sector.