Schlumberger Versus Halliburton: Who Is Delivering Better Returns?

by Trefis Team
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Halliburton Company
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Over the last two years, the profitability of oilfield services companies has declined significantly due to the slump in commodity prices. This has caused the returns generated by these companies to drop drastically, making the investors skeptical of the fundamentals of these oilfield contractors. Though the outlook for the commodity markets remains uncertain, in this note we aim to compare Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL), the two largest oilfield services companies in the world, on the basis of the returns delivered in the last 3-4 quarters.

Firstly, we compare the return on equity generated by the two companies. Return on equity, or ROE, indicates the profit generated by the company for each dollar of shareholders’ equity. Even though Halliburton has historically delivered higher ROE than Schlumberger, the company has failed to maintain its returns in the ongoing commodity downturn. For instance, Halliburton’s ROE has dropped from 3.3% in the third quarter of 2015 to 0.6% in the June quarter of 2016, whereas Schlumberger’s ROE declined from 2.6% to 0.7% during the same period. Thus, we figure that Schlumberger has managed to sustain its returns more efficiently than Halliburton in this commodity trough.

SLB-Q&A-3-1

Secondly, we analyze the return on capital employed, which shows how efficiency with the company’s capital is being employed. Again, Halliburton has historically delivered higher profits than Schlumberger for each unit of capital employed (debt plus equity) in their businesses. However, over the last few quarters, Schlumberger has generated positive return on capital employed, unlike Halliburton, which has been making losses over the last few months. From the table below, it is clear that Schlumberger continues to deliver returns, although declining, while Halliburton has been struggling to remain profitable.

SLB-Q&A-3

Finally, we end the discussion on returns by comparing the dividend yields of the two oilfield giants. This metric depicts the dividend per share received by a shareholder for each dollar of investment in the company’s equity. Based on the dividend paid by the two companies and the average market price of their stocks in the last four quarters, we arrive at a dividend yield of 2.6% and 1.9% for Schlumberger and Halliburton, respectively. This implies that a shareholder will generate higher returns, in the form of dividends, if he invests in one share of Schlumberger compared to Halliburton.

SLB-Q&A-3-2

In conclusion to the discussion above, we believe that while both the companies’ returns have suffered due to the plummeting commodity prices over the last two years, Schlumberger has remained more resilient in terms of returns and has continued to deliver positive returns to its shareholders. On the contrary, Halliburton is having a difficult time sustaining its returns in this commodity slump.

Also read our article – Schlumberger Versus Halliburton: Who Has A Better Financial Position? – to know about the financial position of Schlumberger and Halliburton.

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