Ranking OFS Companies by Their Valuation Multiples

In this series, we’ll rank the top five OFS (oilfield equipment and services) companies with forward multiples that are at the steepest discounts to their current valuation multiples. For the valuation multiple, we have considered the EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization). EV represents market capitalization plus net debt. For ranking, we have considered 25 OFS stocks constituting the VanEck Vectors Oil Services ETF (OIH).

The forward EV-to-EBITDA considers sell-side analysts’ consensus EBITDA estimate for the next 12 months. A lower forward EV-to-EBITDA multiple, or discount, compared to its current EV-to-EBITDA reflects analysts’ expectation of a higher EBITDA in the next 12 months. A higher forward EV-to-EBITDA multiple, or premium, compared to its current EV-to-EBITDA reflects analysts’ expectation of a lower EBITDA in the next 12 months.

As you can see in the above graph, in the OFS industry, Flotek Industries’ (FTK) forward EV-to-EBITDA multiple is at the steepest discount to its current EV-to-EBITDA multiple on March 9, 2018. Flotek Industries produces and sells Complex nano-Fluid chemistry and services through the Energy Chemistry Technologies and the Consumer and Industrial Chemistry Technologies segments. On average, the forward multiples for the companies in OIH are at a 36% discount compared to their current EV-to-EBITDA multiple. Flotek Industries’ forward multiple was at a 94% discount to its current multiple on March 9, 2018. OIH follows an index of 25 OFS companies.

Oil States International’s (OIS) forward EV-to-EBITDA multiple is at the second-steepest discount (74%) to its current EV-to-EBITDA multiple. Oil States International provides specialty products and services to upstream energy producers through the Well Site Services and Offshore and Manufactured Products segments.

National Oilwell Varco’s (NOV) forward EV-to-EBITDA multiple is at the third-steepest discount (57%) to its current multiple. National Oilwell Varco designs, manufactures, and sells systems and components for upstream energy producers through its Wellbore Technologies, Completion and Production Solutions, and Rig Technologies segments. National Oilwell Varco accounts for 6.4% of the iShares US Oil Equipment & Services ETF (IEZ). IEZ decreased 17% in the past year. There wasn’t a change in National Oilwell Varco’s stock price during the same period.

Superior Energy Services’ (SPN) forward EV-to-EBITDA multiple is at the fourth-steepest discount (55%) to its current multiple. Superior Energy Services provides oilfield services and equipment to upstream energy producers through its Drilling Products and Services, Onshore Completion and Workover Services, Production Services, and Technical Solutions segments.

Fairmount Santrol Holdings’ (FMSA) forward EV-to-EBITDA multiple is at the fifth-steepest discount (54%) to its current multiple in the OFS industry. Fairmount Santrol Holdings provides sand-based proppant solutions for upstream energy producers. The solutions are used primarily in hydraulic fracturing activities.

Investors might note that companies in the same industry can have different valuation multiples as a result of size, pricing power, sales and distribution partnerships, management competence, physical assets, overall business strategy, financial leverage, and growth rate.

Next, we’ll discuss Flotek Industries’ valuation multiples.