Will Schlumberger Tank in 2013?

With shares of Schlumberger Limited (NYSE:SLB) trading at around $73.05, is SLB an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Schlumberger is the largest oilfield service provider in the world, but this doesn’t guarantee strong future performance. Let’s take a look at some positives and negatives for Schlumberger.

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Positives:

  • Diversified in product and geographical senses
  • Consistent annual revenue growth
  • Consistent annual EPS growth
  • Strong cash flow
  • Impressive margins
  • Decent dividend yield of 1.70 percent (industry average of 1.40 percent)
  • Quality debt management
  • Trading at fair valuation
  • Expects double-digit earnings growth in 2013 (if industry trends are favorable)

Industry trends aren’t likely to be favorable, but that will be covered further in the Trends section. There are two other big negatives. One is that the stock was crushed in 2008, which indicates a lack of resiliency. The other is that Schlumberger expects North American drilling activity to weaken.

Now, let’s get to some numbers. The chart below compares fundamentals for Schlumberger, Halliburton Company (NYSE:HAL), and Baker Hughes Incorporated (NYSE:BHI). Schlumberger has a market cap of $96.98 billion, Halliburton has a market cap of $36.44 billion, and Baker Hughes has a market cap of $19.85 billion.

SLB

HAL

BHI

Trailing   P/E

17.82

13.76

15.13

Forward   P/E

12.72

9.98

10.70

Profit   Margin

13.03%

9.24%

6.14%

ROE

16.51%

17.84%

7.93%

Operating   Cash Flow

$6.69 Billion

$3.65 Billion

 $1.84 Billion

Dividend   Yield

1.70%

1.20%

1.30%

Short   Position

0.90%

1.90%

2.50%

 

It should be noted that Schlumberger is the only company of the three that has positive levered free cash flow, which isn’t shown on the chart above. Schlumberger has levered free cash flow of $2.19 billion, Halliburton has levered free cash flow of -$96.75 million, and Baker Hughes has levered free cash flow of -$836.88 million. Schlumberger also offers the highest yield. Let’s take a look at some more important numbers prior to forming an opinion on this stock.

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