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Comparing Relative Valuation among 4 Oilfield Services Companies

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Aug. 15 2016, Updated 10:04 a.m. ET

Comparable company analysis

As you can see in the table below, Schlumberger (SLB) is the largest company by market capitalization among our set of select oilfield services (or OFS) companies. FMC Technologies (FTI) is the smallest of the lot by market capitalization.

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EV-to-EBITDA

FMC Technologies’ (FTI) EV (enterprise value) when scaled by the trailing 12-month (or TTM) adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) is the lowest in our group. EV is approximately the sum of its equity value and net debt.

Baker Hughes (BHI) has the highest TTM EV-to-EBITDA multiple in our group. FTI is 0.3% of the ProShares Ultra Oil & Gas (DIG).

Forward EV-to-EBITDA is a useful metric to gauge relative valuation. Halliburton’s (HAL) forward EV-to-EBITDA multiple expansion compared to its adjusted TTM EV-to-EBITDA is the highest in our group. This is because the expected decline in HAL’s adjusted operating earnings (or EBITDA) in fiscal 2016 is more extreme than its peers. This also explains HAL’s low current EV-to-EBITDA multiple compared to the peer average. Analysts expect BHI’s EBITDA to improve in fiscal 2016.

Debt levels

HAL’s debt-to-equity (or leverage) multiple is higher than the group average. A higher multiple could indicate increased credit riskiness. This is concerning, particularly when crude oil prices are volatile. BHI’s leverage is the lowest in our group. Read Market Realists’ article Which Oilfield Service Companies Are in Danger of Bankruptcy?

Price-to-earnings ratio

FTI’s relative valuation, expressed as a TTM PE (price-to-earnings) multiple of 18.1x, is the lowest in the group. Its forward PE multiple expansion reflects a more extreme earnings decline compared to its peers, which typically reflects in the current valuation discount over the peer average.

Over the next three to five years, analysts expect FTI’s earnings to decline ~10%. Analysts expect SLB’s earnings to decline less sharply over the next four quarters.

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