Anadarko Is Trading at a Premium Compared to Historical Multiples



Anadarko’s historical valuation

Anadarko Petroleum’s (APC) EV-to-adjusted EBITDA (enterprise value to adjusted earnings before interest, tax, depreciation, and amortization) ratio was ~15.4x in 2Q16. Enterprise value is the sum of a company’s market capitalization and net debt.

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Breaking down Anadarko’s valuation

Anadarko’s 2Q16 EV-to-EBITDA multiple was higher than its historical valuation multiple of ~9x, meaning that APC was trading at a premium compared to its own historical multiples.

The market value of Anadarko’s equity fell ~16.8% YoY (year-over-year). Its net debt rose from ~$13.9 billion in 2Q15 to ~$14.3 billion in 2Q16. The net result was a fall in its EV in 2Q16. It fell 21% compared to 2Q15.

However, the company’s trailing-12-month adjusted EBITDA fell 56.2% in 2Q16 over 2Q15. This fall explains its higher EV-to-EBITDA multiple in 2Q16.

By comparison, upstream companies such as Continental Resources (CLR), Concho Resources (CXO), and Apache (APA) saw their 2Q16 EBITDAs for the trailing 12 months fall ~49%, 3%, and ~58%, respectively, compared to 2015. These companies make up 8% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

What does Anadarko’s forward EV-to-EBITDA tell us?

A forward EV-to-EBITDA multiple uses market expectations for a company’s EBITDA for the current year. Anadarko’s forward EV-to-EBITDA multiple is 9.6x, meaning that APC could continue to be overvalued compared to its historical levels, albeit far less so than in 2Q16.

Anadarko’s lower forward multiple also indicates that Wall Street expects its EBITDA to be higher this year compared to the last 12 months.

In the next part of the series, we’ll see how Anadarko’s valuation compares to its peers’.


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