Schlumberger (SLB, Financial) announced impressive results for the second quarter 2014 on the back of significantly higher activities on both the offshore and onshore in key markets after a harsh climate that helped the company beat consensus estimates on both the top as well as the bottom lines.
A strong quarterly performance
Schlumberger posted revenue of $12.05 billion, an increase of 8% from $11.18 billion in the corresponding period last year, outperforming analysts’ estimates of $11.94 billion in revenue for the quarter. Also, the company reported earnings growth of about 19% to $1.37 per share from earnings of $1.15 per share in the same quarter a year earlier that exceeded the consensus estimates on earnings of $1.36 per share for the quarter.
Schlumberger, however, demonstrated a mixed outlook as the economic circumstances for most of the countries are slow to progress. The company sees handy thoughtful gains in the United States as the country is bouncing back from the severe winter season, while Europe is witnessing a lackluster growth in the regions. Schlumberger expects comparatively a thinner growth in Brazil and looks forward to enhancing its business due to recent investment in the infrastructure and construction sector.
A better performance can be expected
However, the company expects its IPM rigs projects in south Mexico to restart the production that was stranded with the social issues which is now resolved followed by the new mega tender contract should boost its activities in the second half of the year. In addition, the company will also get assistance from the growing international market in the Middle East, Asia, Africa and some parts of Europe that will drive its margins in the coming months.
On the top of it, the company is experiencing solid activity movements in Argentina, Ecuador and Venezuela that should help the company offset slow growth in Brazil and Mexico where the activity remains slow due to pricing competence. Schlumberger has recently renewed its payment agreement with PDVSA in Venezuela that should help the company to maximize its opportunity in the region. Schlumberger has also managed to trim down both the DSO and the absolute value of its receivables in the region that should add value to its growth.
The oilfield service provider continues to gain traction in Argentina that is driven by its rig activity in the Veca Muetra shale, which is now incorporated with the advanced technology that will drastically reduce its costs and enhance its performance in the region, while Schlumberger expects its Shushufindi project to deliver strong growth in the second half of the year. The company has also signed an agreement with the field tenders and plans to ramp up the production in the remaining half of the year that should drive its margins this year.
Diversifying
Meanwhile, Schlumberger is looking for winning an extra market share as the prices for fracking services are expected to get corrected this year after shrinking for almost two years now in the United States and Canada that should complement its margins this year. It is further forecasted to increase in number of regions in the United States during the first half of 2015, according to the recent report published by the PacWest Consulting Partners LCC. The company will also benefit from the fracking fluid market in the United States as the fracking fluid market is estimated to grow at the compounding annual growth rate of 7.4% from 2013 to 2018, offering total addressable market worth of $37.3 billion in 2018.
Apart from these, the company is doing well in terms of advanced technology, consistency, competence and integration that are driving its performance so far. Schlumberger offers world-class service quality that continues to earn premium for the company despite the slow growing pricing that remains intact in the international market. The company is investing heavily in the on-going transformation drivers with top most concentration on consistency and competence that should assist the company to drive its margins in the second half of the year. This strategic move has already sponsored the oilfield service provider with the $1.9 billion in free cash flow in the first half, which is about 35% higher than the first half of last year 2013.
Conclusion
Schlumberger is currently trading at the forward P/E multiple of 16.04 against the trailing P/E multiple of 20.65 that indicate potential growth for the stock in the future. Also, its PEG ratio of 1.13 for the next five years compliments this remarkable growth. Schlumberger is doing pretty well on the performance and wealth matrix as its profit and operating profit yields are 14.03% and 19.11% respectively, while its ROE stands at 17.58% for the trailing twelve months. The company has the operating cash flow of 10.24 billion and free cash flow of 5.47 billion quite enough to cover the total outstanding debt of 13.24 billion which is well mixed by most measures. Meanwhile, the analysts are forecasting the CAGR of 17.03% which is in line with average industry CAGR of 17.92% for the next five years signifies certain growth prospects for the stock in the coming years.
