Why One Bank Is Urging Its Clients To Dump. Oil. Now
by Tyler Durden
ZeroHedge.com
05/23/2016
Back in March we demonstrated how much of a historical outlier recent energy stock prices are, when we showed the ridiculous forward P/E multiple associated with energy stocks, whose earnings have collapsed not only historically but also on a forward multiple basis, resulting in a 50+ P/E forward multiple: something unprecedented in history.
Overnight, Deutsche Bank recreated the same analysis in an even easier to digest chart, one which shows energy stock valuations based on an even more appropriate – because it focuses on cash flow – valuation metric, EV to EBITDA. As shown below, the US energy sector is now trading at a roughly 7x EBITDA multiple compared to a historical average between 1x and 2x. Notably, the bank also presents what the implied valuation is assuming $45 oil: roughly 3 EBITDA turns lower, implying the market is pricing energy companies on oil back in the $70-80 range, if not higher.
The Rest…HERE
