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Proprietary Data Insights Financial Pros’ Top Oil Services Stock Searches in the Last Month
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Pros Pick Their Favorite Backdoor Energy Play
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Energy analysts expect a crude oil supply shortage either late this year or early next year. We’ve already started to see names like ExxonMobil and Valero run higher. But, financial pros have an interesting way to play this trend, according to our TrackStar data. Recently, we’ve seen a surge of interest in oil service companies. At the top of that list is Schlumberger, which as you’ll soon see, could be a fantastic sleeper stock in this energy rally. Schlumberger’s Business Have you ever thought about the software oil and gas exploration companies use to find drill sites? Or how about the specialized drill bits that allow for incredible precision? Schlumberger stands at the forefront of the energy sector technology sector. Operating across more than 100 countries, Schlumberger serves a diverse clientele, ranging from national oil companies to independent operators. They provide a comprehensive suite of services and technologies for reservoir characterization, drilling, production, and processing. Effectively, they are a support for the energy sector. Schlumberger segments its business into the following areas:
Schlumberger’s latest annual report highlighted tremendous growth in profitability and revenues, driven by a huge increase in production systems as demand for shallow and deepwater operations skyrocketed. As oil prices continue to rise, demand for well construction and production systems should remain steady, while migration to the cloud will help the digital and integration segment. However, the company isn’t without controversy. As the world’s largest oilfield services company, Schlumberger said it has no plans to leave Russia, despite the current war in Ukraine. This stands at odds with other companies like Baker Hughes (BKR) and Haliburton (HAL) which have divested their assets in Russia. Financials
Source: Stock Analysis Like most energy companies, Schlumberger took a hit during the pandemic. However, it’s climbed back with some of its best margins in over a decade. The company currently generates a free cash flow margin of 12.2%, allowing it to pay a nice 2.0% dividend yield while also buying back some stock. This is only about half of what the company offered shareholders in 2019. However, the extra cash has brought the outstanding debt from $17.9 billion in 2020 to $12.8 billion in the latest report. Valuation
Source: Seeking Alpha As we compared Schlumberger to its competitors, we found it priced at a slight premium, except against Tidewater (TDW). Haliburton trades at a lower P/E and price-to-cash multiple, while Baker Hughes at just a lower price-to-cash multiple. Similarly, Schlumberger trades at the highest price-to-sales ratio in the group, save for Tidewater. Growth
Source: Seeking Alpha While Schlumberger is near the top in most growth categories, a longer look back reveals a tepid performance. In fact, Schlumberger, Haliburton, and Baker Hughes, the three major players listed here, have revenues that have remained virtually flat over a five-year period. Only recently has growth picked up, and based on forward estimates, its velocity is waning. Profitability
Source: Seeking Alpha In the profitability comparison, Geospace Technologies (GEOS) looks pretty solid. Yet, we believe that’s short-term and unsustainable. Amongst the big three, they all have fairly similar margins, whether gross or net income. Our Opinion 7/10 Schlumberger will benefit from the ongoing energy sector expansion. While this is a great stock, we like Haliburton slightly more as it trades at a cheaper valuation and has divested from its Russian assets, removing a potential source of uncertainty. |
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