Comparable company analysis
As you can see in the table below, Halliburton (HAL) is the largest company by market capitalization among our set of select OFS (oilfield equipment and services) companies in this series. Core Laboratories (CLB) is the smallest by market capitalization.
National Oilwell Varco’s (NOV) EV[1. approximately the sum of its equity value and net debt] (enterprise value), when scaled by the trailing 12-month (or TTM) adjusted EBITDA (earnings before interest, tax, depreciation, and amortization), is higher than the peer average in our group.
Adjusted EBITDA excludes extraordinary charges such as asset write-offs, severance, and facility closure charges. In fact, NOV’s TTM EV-to-EBITDA multiple is the highest in our group. It makes up 0.87% of the iShares North American Natural Resources (IGE).
Forward EV-to-EBITDA multiple is a useful metric to gauge relative valuation. NOV’s forward EV-to-EBITDA multiple contraction compared to its adjusted TTM EV-to-EBITDA is considerably higher than the peer average in our group. That’s because the expected rise in NOV’s adjusted operating earnings (or EBITDA) in the next four quarters is more extreme than its peers. It’s typically reflected in a high current EV-to-EBITDA multiple.
National Oilwell Varco’s debt-to-equity multiple is lower than our group’s average. A lower multiple could indicate lower credit riskiness. That’s comforting when crude oil prices are volatile. Weatherford International (WFT) is the most leveraged in our group. For a comparative analysis of the top OFS companies, read Market Realists’ series Energy’s Price Recovery Prompts an Oilfield Services Revival.
National Oilwell Varco’s valuation, expressed as a TTM PE (price-to-earnings) multiple, isn’t available because of its negative adjusted earnings. Its forward PE multiple, like some of its peers in the group, isn’t available either, reflecting analysts’ expectation of negative earnings in the next four quarters.
However, analysts expect a 48.0% rise in NOV’s earnings in the next three to five years. That could improve the company’s valuation in the medium to long term. For a comparative analysis of OFS companies’ valuations, read Market Realist’s What Oilfield Services Companies’ Forward Multiples Indicate.
In the next part of this series, we’ll see whether investors have shown interest in NOV stock, as indicated by its short interest.