Comparable company analysis
Schlumberger (SLB) is the largest company among our selected set of oilfield equipment and services (or OFS) companies by market capitalization. National Oilwell Varco (NOV) is the smallest of the lot in terms of market cap.
Schlumberger’s EV, when scaled by its trailing-12-month adjusted EBITDA, is the lowest in the group. Halliburton (HAL) has the highest trailing-12-month EV-to-EBITDA multiple. BHI’s and NOV’s EV-to-EBITDA multiples aren’t meaningful as a result of their negative trailing-12-month earnings. SLB makes up 16.6% of the iShares US Oil Equipment & Services ETF (IEZ).
Forward EV-to-EBITDA is useful in gauging relative valuation. HAL’s forward EV-to-EBITDA multiple compression versus its current trailing-12-month EV-to-EBITDA is the highest in the group because the expected rise in its adjusted operating earnings in the next four quarters is more extreme than its peers’.
This difference also explains NOV’s high current EV-to-EBITDA multiple compared to the peer average. Analysts expect SLB’s EBITDA to improve in the next four quarters.
HAL’s debt-to-equity multiple is higher than the group average. A higher multiple could indicate increased credit risk. This increased risk is concerning, particularly when crude oil prices are volatile. NOV’s leverage is the lowest in the group.
The forward price-to-earnings ratios (or PE) of SLB, HAL, and Baker Hughes (BHI) are positive, implying positive earnings in the next four quarters, compared to negative earnings in the past 12 months. Over the next three to five years, analysts expect HAL’s earnings to improve ~24%.
On the other hand, analysts expect SLB’s earnings to improve ~55% over the next three to five years. This improvement could boost SLB’s valuation going forward.
Next, we’ll discuss the correlations among these oilfield services companies and crude oil’s price.