Continental Resources’ historical valuation
Continental Resources’ (CLR) 4Q16 EV-to-adjusted-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple was ~19x. EV (or enterprise value) is the sum of a company’s market capitalization and net debt.
Breaking down Continental Resources’ valuation
Continental Resources’ 4Q16 EV-to-EBITDA multiple is higher than its historical average multiple of ~10x. The market value of Continental’s equity has risen ~58% year-over-year. Its net debt fell from ~$7.1 billion in 4Q15 to ~$6.6 billion in 4Q16.
Although the company’s net debt fell, its equity’s market value increased more, leading to an increase in Continental’s EV. Meanwhile, its trailing-12-month EBITDA has fallen, which explains Continental’s higher EV-to-EBITDA multiple in 4Q16. As we’ve discussed, Continental’s trailing-12-month adjusted EBITDA for 4Q16 was ~$1.3 billion, compared with ~$1.9 billion in 4Q15. Continental’s EV rose from $15.7 billion in 4Q15 to $25.8 billion in 4Q16.
Continental Resources’ forward EV-to-EBITDA multiple, which uses market expectations for a company’s EBITDA for the current fiscal year, is 9.3x. The lower forward multiple indicates that Wall Street expects Continental’s EBITDA to be higher this fiscal year than in the last 12 months, and that Continental could be undervalued compared with its historical levels.