Texas-based Schlumberger Limited (SLB, Financial) and its subsidiaries are engaged as a supplier of technology, project management and information services to customers in the international oil and gas exploration and production industry. The company provides a range of products and services from exploration through production. The firm manages its business through Reservoir Characterization; Drilling and Production.
Overseas Exposure
The company generates about two-thirds of its revenues outside the U.S. In quarter three revenues set a new high: in international markets revenues of $7.91 billion (up 3%) and in North America an increase of 7%. We expect this strong quarter result to continue throughout 2013. Moreover, the firm expects its international spending on exploration and production to increase 10% in 2013. Margin improvement is another important factor to Schlumberger as well as growth in regions like Middle East/Asia, Europe and Africa regions. Venezuela and Argentine´s operations are key drivers of Latin America revenues.
Valuation
In terms of valuation, the stock sells at a trailing P/E of 17.7x, trading at a premium compared to an average of 16.8x of the industry. Analysts’ expectations imply a forward P/E of 14.67. To use another metric, its price-to-book ratio of 3 indicates a premium versus the industry average of 1.56, and the price-to-sales ratio of 2.5 is above the industry average of 1.26.
Earnings per share (EPS) increased by 26.5% in the most recent quarter compared to the same quarter a year ago. Also, it has demonstrated a positive trend over the past eight years. We include the stock price because EPS often lead the stock price movement.
Finally, I always like to see of one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: return on equity. The ratio has slightly increased when compared to the same quarter one year ago. I have to emphasize this because it is a signal of strength within the company. Schlumberger ROE of 17.84% is above the industry mean of 15.75% and higher than almost all peer group companies, with the exception of Core Laboratories N.V. (CLB).
| Ticker | Name | ROE (%) |
| Average | 15.75 | |
| SLB | SCHLUMBERGER LTD | 17.84 |
| WFT | WEATHERFORD INTL LTD | - 2.25 |
| HAL | HALLIBURTON CO | 14.32 |
| BHI | BAKER HUGHES INC | 6.13 |
| NOV | NATIONAL OILWELL VARCO INC | 11.34 |
| RIG | TRANSOCEAN LTD | 10.30 |
| NE | NOBLE CORP PLC | 9.28 |
| ESV | ENSCO PLC-CL A | 10.51 |
| NBR | NABORS INDUSTRIES LTD | 0.28 |
| RDC | ROWAN COMPANIES PLC-A | 5.56 |
| DO | DIAMOND OFFSHORE DRILLING | 13.29 |
| HERO | HERCULES OFFSHORE INC | 4.09 |
| HP | HELMERICH & PAYNE | 17.80 |
| PTEN | PATTERSON-UTI ENERGY INC | 8.55 |
| CAM | CAMERON INTERNATIONAL CORP | 11.74 |
| CLB | CORE LABORATORIES N.V. | 113.27 |
Final Comment
Due to high competition, companies see international expansion as a channel for growth. With an impressive ROE its strength also lies in effective implementation, strong contracts and new technologies.
For a long-term perspective, I would advise fundamental investors to consider adding Schlumberger to their portfolios as it seems to be an attractive option. Hedge fund managers have also been active in the company. Hedge fund gurus like Stanley Druckenmiller, Louis Moore Bacon, Ruane Cunniff, George Soros and John Keeley have invested in it.
Disclosure: Vanina Egea holds no position in any stocks mentioned.
