Schlumberger Bouncing Back

10/27/2014


  Recent Price
$96
  Dividend
$1.60
  Yield
1.7%
  P/E Ratio
18
  Shares (millions)
1,310
  Long-Term Debt as % of Capital
22%
  52-Week Price Range
$118.76 - $84.91

Schlumberger ($96; SLB) shares, down 19% from their all-time high in late June, have regained their footing since the company alleviated some fears about demand for oilfield services.

Per-share profits from continuing operations rose 16% to $1.49 in the September quarter, topping the consensus of $1.46. In August, Schlumberger warned that sanctions imposed on Russia would reduce per-share profits by roughly $0.03. At the time, the consensus was $1.51 per share.

The stock's Overall rank, currently a modest 78, could get a boost from the strong results. Schlumberger is a Focus List Buy and a Long-Term Buy.

Oil demand still OK long-term

Weak economic data in Europe and China in the past month reduced near-term expectations for oil demand, softness compounded by swelling production in North America and efforts by Saudi Arabia to gain market share.

However, Schlumberger says long-term oil demand is largely unchanged as the global economy continues its steady recovery. Moreover, oil prices will need to fall further before most energy projects stop making money.

West Texas Intermediate, the proxy for U.S. oil prices, trades at less than $82 per barrel, 24% below its 2014 high of nearly $108, set in June. Brent crude, the benchmark for global prices, has slumped 26%.

Just 3% of global oil production for the September quarter came from projects with breakeven prices above $80 per barrel, according to the International Energy Agency. About 4% of U.S. shale production has breakeven costs above $80. Some industry and government research suggests U.S. production might not begin to shrink unless oil fell to $60 per barrel.

Other trends in Schlumberger's favor include:

• The U.S. onshore rig count rose 8% in the September quarter. Hydraulic fracturing (fracking) wells tend to be larger and require more service than traditional wells. The number of horizontal wells — the type that require fracking — has risen more than 20% in the U.S. over the last year.

• Oil production from new wells in North Dakota's Bakken and Texas' Eagle Ford shale fields is poised to rise over the next few months, says the U.S. Department of Energy.

• The World Bank expects the global economy to expand at an average rate of 3.3% from 2015 to 2017, which would require higher oil production.

Growth and value

Schlumberger's sales advanced 9% in the September quarter. The most profitable unit, reservoir characterization (25% of revenue in the nine months ended September), which evaluates underwater rock formations to find pockets of oil and natural gas, saw sales fall 3% in the quarter. In contrast, Schlumberger's two larger units delivered double-digit growth. The drilling business (38%) provides drill bits, tools, and engineering services, while production (37%) offers well-completion, pumping, and subsea services.

Schlumberger shares fetch a modest premium to peers but look cheap relative to historical norms. At 18 times trailing earnings, the stock trades 18% below its five-year average.

An annual report for Schlumberger Limited is available at 5599 San Felipe, 17th Floor, Houston, TX 77056; (713) 375-3400; www.slb.com.

SCHLUMBERGER
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Sep '14
1.49
vs.
1.29
9%
118.76
-
100.30
23 - 19
Jun '14
1.37
vs.
1.15
8%
118.13
-
96.66
24 - 19
Mar '14
1.21
vs.
0.97
6%
98.45
-
85.77
21 - 18
Dec '13
1.35
vs.
1.04
7%
94.91
-
84.91
21 - 19
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
45.27
4.75
1.21
94.91
-
69.08
20 - 15
2012
42.15
4.01
1.08
80.78
-
59.12
20 - 15
2011
39.54
3.66
0.96
95.64
-
54.79
26 - 15
2010
27.45
2.86
0.84
84.11
-
51.67
29 - 18
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
78
63
78
87
80
9
29

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com