Review & Outlook

Our take on the investing, financial, & economic themes of the day

Barron’s: Schlumberger Profits Should Gush

Over the weekend the cover story of Barron’s enthusiastically endorsed one of our core energy holdings, the oilfield services giant Schlumberger (SLB). The long article profiles the company’s CEO and talks about Schlumberger’s impressive moves to take advantage of the U.S. shale drilling boom:

In the past year, Schlumberger has quietly flexed its financial muscles, acquiring 12 North American companies that specialize in boosting the production from oil and gas wells. Just like that, the energy equipment and services giant became a leader in extracting liquids from shale basins through what’s known as artificial-lift operations, part of the booming business in hydraulic fracturing that’s reshaping the industry.

Long the top offshore and international provider of services and equipment catering to huge clients such as ExxonMobil (ticker: XOM) and Chevron (CVX), Schlumberger (SLB) is in the midst of an aggressive push to gain share among onshore exploration-and-production companies in North America, where much of today’s growth is. “Where the drill goes, Schlumberger goes” has been the operating philosophy of the company since its founding in 1920 by two brothers, Conrad and Marcel Schlumberger, in Paris.

Though it pulled back recently because of worries about Russia, Schlumberger is still soundly beating the S&P 500 this year, up about 20% year-to-date and 32% over the last twelve months. Today the stock is up another 1.5% perhaps on the strength of the Barron’s story.

(Source: Schlumberger)

The company has beaten earnings estimates for the last eleven quarters. Even with this impressive run up, though, the stock has trailed some of its main competitors and remains reasonably valued with room to keep going up, according to Barron’s:

At $106, the stock trades for less than 16 times 2015 projected earnings of $6.85 a share, and at about 13 times 2016 expectations of $8.03 a share. Historically, Schlumberger has traded at about 20 times forward earnings.

Barron’s articles are certainly not comprehensive or the final word on any investment decisions, but it is nice to get some confirmation.

The existence of companies such as Schlumberger that are firing on all cylinders and yet still reasonably priced support our view that we are not in a full-blown stock bubble. Rather there are certain pockets of the market that are a bit overheated while many other area’s remain reasonably priced.