Schlumberger Stock Poised For More Gains?
[Updated 06/17/2021]
Schlumberger’s (NYSE: SLB) first quarter revenues declined by 6% sequentially, largely due to low North American rig count and a seasonal dip in international business. Apart from the traditional reservoir performance and well construction segment, the company’s digital & new energy business also experienced headwinds mostly due to weak macroeconomic activity. Per recent filings, the company’s short, medium, and long-term strategic focus is on the development of Core, Digital, and New Energy businesses, respectively. The Digital and New Energy segments are poised to unlock new revenue streams and drive long-term growth. With a low capital spending budget, the company is targeting a 4-percentage-point improvement in free cash flow margin. Thus, Trefis believes that SLB stock is poised for long-term gains. We highlight the historical trends in revenues, earnings, and stock price in an interactive dashboard analysis, Schlumberger Stock Has Lost 49% Since 2017.
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[Updated 02/22/2021] – Speculating On Tech Stocks? Why Not Consider Schlumberger Stock Instead
With the pandemic causing a paradigm shift in energy demand, Schlumberger (NYSE: SLB) has restructured its organization to focus on digital solutions for the existing oil & gas industry and the budding renewable energy sector. As crude oil prices are expected to remain subdued for a couple of years, there is a rising demand for technology solutions to enhance asset productivity and reduce capital costs. In Q2 2020, Schlumberger signed an agreement with Exxon Mobil to jointly develop and implement digital drilling solutions. Later, Schlumberger partnered with Honghua Electric, a Chinese drilling equipment manufacturer, to integrate its DrillOps software with all new Honghua rigs. With the company identifying digital innovation and new energy as two areas of future growth, Trefis believes that SLB is a good pick to speculate on the technology solutions business. We highlight the historical trends in revenues, earnings, and stock price in an interactive dashboard analysis, Why SLB stock has lost 60% since 2017?
Digital Segment’s strong profitability attracting higher capital allocation
In 2020, the company’s new operating segments Digital & Integration, Reservoir Performance, Well Construction, and Production Systems contributed 13%, 23%, 36%, and 28% of total revenues, respectively. Reservoir Performance and Production Systems segments provide technology services for searching hydrocarbon reserves and real-time production management services to oil & gas companies, respectively. Due to sluggish oil demand in 2020, Reservoir Performance and Production Systems segments observed a contraction of 40% and 20%, respectively. While the two segments contribute more than half of Schlumberger’s top line, they received a comparable amount of capital investment as the Digital segment. In the past two years, SLB invested $4 billion with $1.4 billion allotted to the Digital & Integration segment, $1.5 billion to the Reservoir and Production Systems systems combined, and $1.1 billion to Well Construction. Looking at margins, the Digital & Integration, Reservoir Performance, Well Construction, and Production Systems reported a pre-tax operating margin of 24%, 6%, 10%, and 9%, respectively.
Industry Outlook
Weakness in crude oil and natural gas prices is the key concern for the oil & gas industry. However, declining commercial crude oil and natural gas inventories are a positive indicator for the industry. Moreover, the EIA expects the WTI benchmark and Henry Hub spot price to observe 30% and 40% growth in 2021, respectively. Currently oil, coal, and natural gas account for broadly 32%, 27%, and 24% of the global energy consumption, respectively. With industry leaders including Exxon, Chevron, BP, and Royal Dutch Shell enhancing their low carbon and renewable energy portfolio, the share of natural gas and alternative energy is expected to rise in the long run.
Do Schlumberger’s peers offer better gains? Schlumberger Stock Comparison With Peers summarizes how SLB compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.
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