Analyzing EQT’s Enterprise Multiple
EQT Stock on a Downtrend: Driven by Crude Oil, Natural Gas
EQT’s enterprise multiple
As of 3Q15, EQT’s (EQT) EV-to-adjusted-EBITDA (enterprise value to adjusted earnings before interest, taxes, depreciation, and amortization) ratio is ~10.3x. That’s lower than EQT’s historical average EV-to-EBITDA ratio of ~11x over the last five years. As you can see in the graph below, EV-to-EBITDA ratio has been decreasing over the last two quarters. This was mainly due to the much steeper fall in EV than EBITDA in the same period.
Other upstream companies within the S&P 500 (SPY) such as Noble Energy (NBL), Pioneer Natural Resources (PXD), and Murphy Oil (MUR) have enterprise multiples of ~12.4x, ~10x, and ~3.2x, respectively.
EQT’s forward EV-to-EBITDA multiple is ~9.9x. That’s lower than its own historical average of ~11x. For 2016, Wall Street analysts estimate EQT’s EBITDA to be lower by ~4% YoY (year-over-year) at ~$1.3 billion.
What is enterprise multiple?
EV-to-EBITDA ratio is also called enterprise multiple. It’s preferred over PE (price-to-earnings) ratio, especially for upstream companies, because it takes into account the debt of a company. In enterprise multiple, enterprise value is the summation of market capitalization and market value of debt minus total cash and cash equivalents.
EQT’s proved reserves
As of December 31, 2014, EQT’s proved reserves totaled ~10.7 Tcfe (trillion cubic feet equivalent), an increase of 29% from December 31, 2013. As of December 31, 2014, ~91% of EQT’s proved reserves consisted of natural gas, and ~9% consisted of natural gas liquids and crude oil. All of EQT’s proved reserves are located in the United States. Of the total proved reserves, ~81% is in the Marcellus Shale alone.
According to EQT’s 2014 annual report, the discounted value of its reserve base at the end of 2014 was ~$4.8 billion. Given the decline in commodity prices in 2015, this value would be much lower today.
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