Comparing Relative Valuation among 4 Oilfield Giants



Comparable company analysis

As you can see in the following table, Schlumberger (SLB) is the largest company by market capitalization among our set of select oilfield equipment and services companies. National Oilwell Varco (NOV) is the smallest by market capitalization.

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Baker Hughes, a GE company (BHGE), has the highest trailing 12-month EV-to-EBITDA multiple in our group. Schlumberger’s EV (enterprise value), when scaled by the trailing 12-month adjusted EBITDA, is the lowest in our group. Schlumberger accounts for 17.5% of the iShares US Oil Equipment & Services ETF (IEZ). IEZ fell 18% in the past year—compared to a 12% fall in Schlumberger’s stock price. National Oilwell Varco’s (NOV) relative valuation, expressed as the EV-to-EBITDA multiple, isn’t meaningful due to its negative operating earnings. The EV represents the summation of a company’s equity value and net debt.

Baker Hughes’s forward EV-to-EBITDA multiple compression versus its current EV-to-EBITDA is the steepest in our group. The expected rise in Baker Hughes’s adjusted EBITDA in the next four quarters is more extreme compared to its peers. It explains Baker Hughes’s high current EV-to-EBITDA multiple compared to its peers’ average. Analysts also expect Halliburton (HAL) and Schlumberger’s EBITDA to improve in the next four quarters.

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Debt levels

Halliburton’s debt-to-equity (or leverage) multiple is higher than the group average. A higher multiple could indicate a higher debt load and more financial risks. Baker Hughes and National Oilwell Varco’s leverage ratios are lower than the group average.

PE ratio

The forward PE (price-to-earnings) multiples for all four of the OFS companies discussed in this series are positive. It implies positive earnings in the next four quarters. Baker Hughes and National Oilwell Varco’s forward PE multiples suggest that their adjusted earnings will turn positive in the next four quarters—compared to their current negative adjusted earnings.

Next, we’ll discuss the correlation between these oilfields services companies and crude oil prices.


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