SLB Market Research & Analysis Report
Updated May 6, 2015

Growth and Balance Sheet

The company reported record net income of $975 million, or 76 cents diluted earnings per share, for the first quarter of year 2015 ending March 31. That's down from net income of $1,592 million, or $1.21 diluted earnings per share for the same quarter last year. Revenues for the first quarter were $10,248 million, down from $11,239 million for the same quarter last year. The decrease in revenue is primarily due to decline in North American land activity and pricing pressure, as well as to reduced customer spend and fall in value of the Russian ruble and the Venezuelan bolivar. All of company segments recorded a decrease in revenue in comparison to the same quarter last year. Reservoir Characterization was down 21.1% to $2,550 million, primarily due to cut in discretionary and exploration spending and lower multiclient and SIS software sales. Drilling was down 8.5% to $3,963 million, primarily due to drop in rig count in North America and the unfavorable currency effects in Russia and Venezuela.  Production was down 5.5% to $3,769 million, primarily due to lower pressure pumping activity and increased pricing pressure. Company’s gross margin decreased nearly 120 basis points to 21% of sales from 22.19% in the first quarter of year 2014. The operation margin deteriorated to 13.43% of sales from 19.40% in the first quarter of year 2014. Cash flow provided by operating activities for the quarter ending March 31, 2015 was $1,770 million, in comparison to $1,837 million for the same period last year. Free cash flow for the quarter was $954 million, up from $689 million for the same quarter last year. Cash and short-term investments as of March 31, 2015 were $6,803, down from $7,501 million as of December 31 2014. SLB forecasted second quarter of year 2015 EPS are expected to be from 72 cents to 91 cents, compared to actual EPS of $1.21 for the second quarter of last year. The financial strength indicators of the company are satisfactory levels. Company’s current ratio is 1.61 and the industry average ratio is 1.56. The quick ratio of 1.29 is also better than the industry average of 1.00. The interest coverage ratio of 36.91 is trailing the industry average of 43.02, but it is still at very satisfactory levels.  In terms of efficiency and effectiveness, the asset turnover ratio of 0.72 is better than the industry average of 0.66; the receivables turnover ratio of 4.31 is at worse levels than the industry average ratio of 5.52; and the ROE of 13.05% is standing better than the industry average of 10.6%. 

Valuation

SLB PE stands at 24.85 above the industry average of 18.70, and above the stock market average represented by the S&P 500 average of 20.98. The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 17.66x to 24.77x trailing 12-month earnings. SLB's current Price/Sales of 2.48 is above the average of its industry of 1.72. SLB’s head to head comparison to its main competitors shows that the company, along with WFT, has the highest gross margin, but one that is below the industry average. The achieved operating margin of the company is the best result in comparison to the selected competitors, and well above the industry average. The quarterly revenue growth of the company is negative, but also the selected competitors have experienced decline in revenues for the quarter. The company trades at average P/E ratio in comparison to the P/E ratios at which the competition is trading. However, SLB has the best PEG ratio, which might suggest that the company is currently a cheap buy. SLB trades at higher P/S ratio than the competition. SLB’s twelve trailing months EBITDA is $12.29 billion, higher than the achieved EBITDAs of the selected peers. The stock is currently trading below its intrinsic value of $98.62, this suggests that the stock is currently undervalued at these levels. The beta of 1.27 implies higher volatility of the stock with respect to the S&P 500. SLB has shown favorable earnings consistency over the last five years. Company’s earnings have increased by 10.61% over the same period. The current quarter earnings in comparison to the same quarter last year have decreased by 37.20%. SLB’s Total Debt/Equity of 33.77 is above the required maximum, but it is below the industry average of 38.1. SLB’s current price levels are above the maximum level, 22.5% below the 52 week high of $118.76, and the technical analysis give positive view of the stock. The majority of analyst ratings are outperform. SLB has a dividend payout ratio of 46% and trailing annual dividend yield of 1.80%.

About SLB

Schlumberger N.V. is a supplier of technology, integrated project management and information solutions to the international oil and gas exploration and production industry. The Company operates in the oilfield service markets through three Groups, which include Reservoir Characterization Group, which consists of the principal technologies involved in finding and defining hydrocarbon resources; Drilling Group, which consists of the principal technologies involved in the drilling and positioning of oil and gas wells, and Production Group, which consists of the principal technologies involved in the lifetime production of oil and gas reservoirs and includes Well Services, Completions, Artificial Lift, Well Intervention, Water Services and the Schlumberger Production Management field production projects.

Competitor Comparison

Schlumberger Limited (NYSE:SLB) N.V.

Highlights

Schlumberger Limited supplies technology, integrated project management, and information solutions to the oil and gas exploration and production industries worldwide. The stock closed yesterday’s trading session at $92.04. In the past year, the stock has hit a 52-week low of $75.60 and 52-week high of $118.76. The intrinsic value of the stock is above the current price. SLB has a market cap of $116.87 billion and is part of the Basic Materials sector.

• Leadership in providing technology expertise for exploration activities
• Strong research capabilities
• Diversified revenue stream    

• Legal proceedings 

SLB Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. SLB's 52 week high is $118.76, current price is $92.04, is 22.5% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 24.85, the average industry P/E ratio is 18.70 and is above the S&P 500 P/E ratio of 20.98.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own  0.06% of SLB  stock. Management's representation is  not  large enough. This does  not  satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

SLB is trading in the range of $84.84 - $95.13 in the past 30 days. The stock has been showing support around the level of $80 and resistance in the $100 range. The stock is trading close to the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 57.91. From July last year until January this year the stock was pretty much in a free fall. Also observable on the chart on page 1 is that the stock was trading in a horizontal channel from December to mid-April – when the stock broke up of the trading pattern – which is a strong confirmation that the bearish trend is over. For further confirmation one might what for a close above the October/November resistance and psychological level at around $100. Our indicators give positive view of SLB.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stoc

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com are 10 Buy, 15 Outperform, 12 Hold, 1 Underperform, and 1 Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. SLB’s annual EPS for the last 5 years were 3.38, 3.67, 4.10, 5.05, and 4.16 this type of earnings action is favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. SLB’s Total Debt/Equity of 33.77 is above the required maximum, but it is below the industry average of 38.1.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. SLB’s adjusted EPS growth for this quarter relative to the same quarter a year earlier is -37.2%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. SLB’s annual earnings growth rate over the past five years is 10.61%, below our target.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.