Are Investors Too Optimistic On Schlumberger Stock?

SLB: SLB logo

The shares of Schlumberger (NYSE: SLB) have gained 45% in value since the beginning of the year, pushed by surging benchmark oil & gas prices and the geopolitical uncertainty associated with the Russia-Ukraine war. However, the rig count figures in North America are 35% lower than pre-pandemic levels. Given the gradual rise in drilling activity across geographies, Schlumberger’s revenues in 2022 are likely to be lower than 2019. Thus, Trefis believes that investors seem to be too optimistic on the stock. We highlight the historical revenue trends in Schlumberger’s revenues across key operating segments in an interactive dashboard analysis.

A Quick Look At Schlumberger Financial Performance

Before the pandemic, Schlumberger’s revenues observed an average growth rate of 6% p.a. from $27.8 billion in 2016 to $32.9 billion in 2019 assisted by rising oil & gas demand and subsequently oil field services. The top line fell sharply to $23.5 billion in 2020 and remained almost flat in 2021. While net-margins have been skewed in recent years due to depreciation and impairment costs, the operating cash margin have ranged within 12-20%. Moreover, the company utilizes a sizable portion of its operating cash in property, plant & equipment and the rest in dividend payouts to shareholders.

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How has SLB stock fared in comparison to the S&P 500?

SLB stock declined from levels of around $34 in February 2020 (pre-crisis peak) to levels of around $14 in March 2020 (as the markets bottomed out), implying SLB stock lost 60% from its approximate pre-crisis peak. With the rising transportation demand and macroeconomic uncertainty due to the Russia-Ukraine war, the stock has gained 34% from pre-crisis levels to $46 and we believe that it is likely to observe a correction as rig count numbers still stand lower. In comparison, the S&P 500 Index first fell 34% as Covid-19 cases accelerated outside China and is currently 23% higher than pre-pandemic levels.

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 Returns Jun 2022
MTD [1]
YTD [1]
Total [2]
 SLB Return 1% 55% -45%
 S&P 500 Return 1% -12% 87%
 Trefis Multi-Strategy Portfolio 3% -16% 230%

[1] Month-to-date and year-to-date as of 6/3/2022
[2] Cumulative total returns since the end of 2016

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