Are Frontline's 3Q15 Results a Window to Its Future?
EV-to-EBITDA
Crude oil (DBO) tanker companies are best valued and compared using an EV-to-EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) ratio. A company’s forward EV-to-EBITDA ratio reflects what investors are willing to pay for the next four quarters of estimated EBITDA.
Frontline’s EV-to-EBITDA multiple
Frontline (FRO) is currently trading at an EV-to-EBITDA multiple of 3.87x compared to its last two-year average of 10.44x. Frontline’s multiple in the last two years reached a high of 23.5x in December 2013 and a low of 3.68x in August 2015.
Generally, falling multiples and low valuation multiples precede stock rebounds. If analyst estimates for EBITDA are considered appropriate, Frontline’s valuation multiple indicates that good times will most likely be ahead for investors.
Analyst estimates
Wall Street’s EBITDA estimate for Frontline for 2016 is $339 million against the actual EBITDA of $200 million for the past four quarters. Although the current low valuation multiple is attractive, investors should keep in mind that EBITDA estimates can change over time.
Comparing multiples with peers
Frontline’s current EV-to-EBITDA valuation multiple in November is 3.87x. This is on the lower side compared to most of its peers.
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DHT Holdings (DHT) – 4.95x
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Nordic American Tankers (NAT) – 6.98x
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Tsakos Energy Navigation (TNP) – 5.61x
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Teekay Tankers (TNK) – 6.2x
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