Explaining Weatherford International’s Historical Valuation

Weatherford International: Life after Its Credit Rating Downgrade

(Continued from Prior Part)

Weatherford International’s PE trend

In 1Q16, Weatherford International’s (WFT) adjusted earnings were negative, while its share price decreased by 7% compared to the end of 4Q15. As a result, WFT’s price-to-earnings (or PE) multiple was not meaningful in 1Q16.

Weatherford International’s (WFT) PE multiple fluctuated between fiscal 2009 and fiscal 2014. In fiscal 2010, Weatherford International’s PE multiple spiked. On December 31, 2010, WFT’s share price increased by 27% compared to a year ago. In fiscal 2010, its adjusted earnings decreased sharply compared to fiscal 2009. This led to a sharply higher PE ratio. WFT’s fiscal 2015 PE multiple was not meaningful as a result of its negative earnings.

Forward PE considers the sell-side analysts’ consensus estimate of earnings for the next four quarters. Weatherford International’s forward PE is not available, indicating an expected loss for the next four quarters.

Price to cash flow multiple

Weatherford International’s price-to-cash flow (or PCF) multiple remained steady in the past three years until fiscal 2015. During this period, WFT’s cash flow from operating activities (or CFO) and share price decreased sharply.

So, the PCF multiple did not change much during this period. Going forward, analysts expect the company’s PCF to rise, which reflects analysts’ expectations of lower cash flow in the next four quarters.

Weatherford International’s EV-to-EBITDA trend

Weatherford International’s historical valuation, which is expressed as the EV-to-EBITDA ( enterprise value to earnings before interest, tax, depreciation, and amortization ) multiple, fluctuated from fiscal 2009 to fiscal 2014. From fiscal 2014 to fiscal 2015, Weatherford International’s net debt decreased. WFT’s share price decreased even more during this period.

In effect, the company’s enterprise value (or EV), which is approximately the sum of the company’s equity value and net debt, decreased in fiscal 2015. WFT’s TTM EBITDA became negative in fiscal 2015. So, the EV-to-EBITDA ratio was not meaningful in fiscal 2015.

In 1Q16, WFT’s EV-to-EBITDA multiple was not meaningful, the result of a negative TTM EBITDA. In comparison, WFT’s peer Oceaneering International’s (OII) EV-to-EBITDA stood at 6.6x by the end of fiscal 1Q16. WFT comprises 0.3% of the ProShares Ultra Oil & Gas ETF (DIG).

Forward EV-to-EBITDA considers the sell-side analysts’ consensus estimate of EBITDA for the fiscal year. Weatherford International’s forward EV-to-EBITDA multiple for fiscal 2016 is positive. This implies analysts’ expectations of a positive EBITDA for Weatherford International in fiscal 2016.

Next, we will discuss Weatherford International’s valuation compared to its industry peers.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Is Weatherford International’s Share Price Weak?

• Part 2 - What Did Weatherford’s Management Say after Its 1Q16 Earnings?

• Part 3 - Analyzing Value Drivers for Weatherford International