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Relative Valuation: Comparing Schlumberger and Halliburton

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Nov. 20 2020, Updated 5:33 p.m. ET

Comparable company analysis

In this part, we’ll compare Schlumberger (SLB) and Halliburton’s (HAL) relative valuation multiples. We have also included Baker Hughes, a GE Company (BHGE), and National Oilwell Varco (NOV) in our analysis. As you can see in the following table, Schlumberger is the largest company by market capitalization among our set of select OFS (oilfield equipment and services) companies. National Oilwell Varco is the smallest company by market capitalization.

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EV-t0-EBITDA

Halliburton’s EV (or enterprise value), when scaled by the TTM (trailing 12-month) adjusted EBITDA, is the lowest in our group. Schlumberger’s EV-to-EBITDA multiple is lower than the group average. National Oilwell Varco has the highest TTM EV-to-EBITDA multiple in our group. Halliburton accounts for 10.8% of the iShares US Oil Equipment & Services ETF (IEZ). IEZ tracks an index composed of US equities in the oil equipment and services sector. IEZ increased 1% in the past year compared to a 17% rise in Halliburton’ss stock price during the same period. The EV represents the summation of a company’s equity value and net debt. To learn about National Oilwell Varco’s 1Q18 earnings, read National Oilwell Varco’s 1Q18 Results Disappoint.

Schlumberger and Halliburton’s forward EV-to-EBITDA multiple compression versus the current TTM EV-to-EBITDA multiple is lower than the average EV-to-EBITDA multiple compression in our group. The expected rise in Schlumberger and Halliburton’s adjusted EBITDA in the next four quarters is less extreme compared to the peers’ average in our group.

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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. Schlumberger’s leverage ratio is marginally lower than the group average.

PE ratio 

Halliburton’s forward PE (price-to-earnings) ratio is lower than its current PE ratio, which indicates analysts’ expectation of higher earnings in the next four quarters. Halliburton’s peers in our group have positive forward PE ratios, which indicates analysts’ expectation of positive earnings in the next four quarters.

Next, we’ll discuss Schlumberger and Halliburton’s correlation with crude oil prices.

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