What Does Basic Energy Services’ Historical Valuation Suggest?

On March 31, 2017, Basic Energy Services’ (BAS) stock price had fallen 6% from December 30, 2016. However, in 1Q17, BAS’s adjusted earnings were negative. So, BAS’s price-to-earnings (or PE) multiple wasn’t meaningful in 1Q17. Basic Energy Services’ historical valuation, expressed as a PE multiple, was not meaningful in fiscal 2016 as a result of negative earnings.

From 4Q16 to 1Q17, BAS’s cash flow from operations (or CFO) turned negative. So, the price-to-cash-flow multiple wasn’t meaningful in 1Q17. Going forward, BAS’s price-to-cash-flow multiple is positive and lower than in fiscal 2016, which reflects analysts’ expectations of higher cash flow in the next 12 months.

BAS’s adjusted EBITDA (or earnings before interest, tax, depreciation, and amortization) turned negative in 1Q17 compared to a quarter ago. In effect, the EV-to-EBITDA ratio wasn’t meaningful in 1Q17.

Forward EV-to-EBITDA considers the sell-side analysts’ consensus estimate of EBITDA for the fiscal year. Basic Energy Services’ forward EV-to-EBITDA multiple for the next 12 months is lower than its 2016 EV-to-EBITDA multiple, which reflects analysts’ expectation of a higher EBITDA in the next 12 months. In fiscal 2016, adjusted EBITDA was higher than the past-seven-year average due to low EBITDA.

In comparison, Schlumberger’s (SLB) forward EV-to-EBITDA stands at 14.1x, while Baker Hughes’s (BHI) forward EV-to-EBITDA multiple is 16.2x. Read more about oilfield service companies’ valuation in Market Realist’s Which Oilfield Services Giant Is Most Attractive after 1Q17? Patterson-UTI Energy’s (PTEN) forward EV-to-EBITDA is 8.5x. PTEN makes up 0.22% of the SPDR S&P MidCap 400 ETF (MDY).

Next, we’ll discuss Schlumberger’s valuation compared to its industry peers.