Comparable company analysis
FMC Technologies (FTI) is the largest company by market cap among our set of select oilfield services and equipment (or OFS) companies. Oil States International (OIS) is the smallest of the lot by market capitalization.
Weatherford International’s (WFT) enterprise value (or EV), when scaled by trailing-12-month adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), is higher than the peer average. WFT’s EBITDA is adjusted for litigation charges, severance and facility closures, and reductions in the fair market value of notes receivable.
Forward EV-to-EBITDA is a useful metric in gauging relative valuation. WFT’s forward EV-to-EBITDA multiple expansion versus its trailing-12-month EV-to-EBITDA is lower than the peer average.
In fact, analysts expect WFT’s EV-to-EBITDA multiple to contract by the end of 2016, reflecting their expectations of higher EBITDA. This typically means a higher current EV-to-EBITDA multiple compared to the peer average. WFT makes up 0.04% of the iShares MSCI ACWI Low Carbon Target ETF (CRBN).
WFT’s net debt-to-EBITDA multiple isn’t meaningful because its EBITDA was negative in 2Q16. However, adjusted for various non-recurring charges, its net debt-to-EBITDA was higher than the peer average.
WFT’s debt-to-equity multiple is also higher than the peer average. A higher debt-to-equity ratio reflects increased risk. This is concerning when energy prices are volatile. OIS has the lowest debt-to-equity ratio in the peer group.
Weatherford International’s valuation, expressed as a trailing-12-month PE (price-to-earnings) multiple, is not meaningful due to the company’s negative adjusted earnings. Its forward PE is also not available, reflecting analysts’ expectations of losses in the next four quarters.
WFT’s higher leverage and higher indebtedness may pose increased risk, which could strain the company’s valuation. On the other hand, analysts expect a healthy 21% earnings growth for Weatherford International in the next three to five years. This could lift WFT’s valuation in the medium to long term.
Next, let’s discuss whether investors have shown interest in WFT’s stock, as indicated by its short interest.