Comparable company analysis
As you can see in the table below, Helmerich & Payne (HP) is the largest company by market capitalization among our set of select OFS (oilfield and equipment services) companies here. Nabors Industries (NBR) is the smallest of the group by market capitalization.
Patterson-UTI Energy’s (PTEN) EV (approximately the summation of its equity value and net debt), when scaled by TTM (trailing-12-month) adjusted EBITDA, is lower than the peer group average. Adjusted EBITDA excludes extraordinary charges like goodwill and asset impairment. Nabors Industries’ TTM EV-to-EBITDA is the lowest in our set Patterson-UTI Energy makes up 2.4% of the iShares US Oil Equipment & Services ETF (IEZ).
Forward EV-to-EBITDA is a useful metric to gauge relative valuation. PTEN’s forward EV-to-EBITDA multiple expansion versus its adjusted TTM EV-to-EBITDA is higher than the peer average of our group of OFS companies. This is due to the expected drop in PTEN’s adjusted operating earnings (EBITDA) in fiscal 2016 is more extreme than that of peers. This drop also explains PTEN’s current valuation as expressed in its low EV-to-EBITDA multiple.
Patterson-UTI Energy’s debt-to-equity multiple, or leverage, is lower than the peer average. A lower multiple could indicate decreased level of credit riskiness. This is comforting, particularly when crude oil prices are volatile. Patterson-UTI Energy’s leverage is the highest in our group. (For a comparative analysis of the top OFS midcap companies, read Market Realists’ series Which Oilfield Service Giants Are Still the Gushers?)
Patterson-UTI Energy’s forward PE multiple reflects the analyst expectation of negative earnings for the next four quarters. Analysts expect many peers in our select group of OFS companies to post negative earnings for the next four quarters. Analysts also expect Patterson-UTI Energy’s earnings to fall by 19% in the next three to five years, which could lower PTEN’s valuation in the medium to long term.
Now let’s discuss whether investors have shown interest in PTEN’s stock, as indicated by short interest.