An Unconventional Energy Play - InvestingChannel

An Unconventional Energy Play

Proprietary Data Insights

Financial Pros’ Top Oil Services Stock Searches in the Last Month

Rank Ticker Name Searches
#1 SLB Schlumberger N.V. 15
#2 HAL Halliburton Company 14
#3 GEOS Geospace Technologies 4
#4 BKR Baker Hughes A Ge CO 4
#5 TDW Tidewater Inc 4
#ad Unlock Financial Clarity with The Juice

Pros Pick Their Favorite Backdoor Energy Play

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:

  • Digital & Integration (11.9% of revenue) – This segment encompasses digital solutions and integration services designed to optimize resource discovery and recovery.
  • Reservoir Performance (20.2 % of revenue) – Focuses on technologies and services to enhance energy reservoir performance.
  • Well Construction (41.4% of revenue) – Provides critical technologies for the construction of wells, ensuring efficiency and safety.
  • Production Systems (30.2% of revenue) – Offers technologies and services that support the production phase, facilitating the management of energy resources.

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.



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.



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.



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.



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.

Want to get content like this directly to your inbox?
Then we urge you to sign up for our newsletter here

Related posts

Carl Icahn Increases His Stake In Take-Two Interactive To 10.68%


iPad Mini Display Outperformed By Kindle Fire HD & Nexus 7


Foxconn Might Open Manufacturing Plants In The U.S. [REPORT]


Peter Cundill Protégé Tim McElvaine on Investing in Japan [VIDEO]


Set Bing Home Page Image As Lock Screen In Windows 8


Morning Market News: JCP, APO, MCHP, ZIP, ENR, LGF, EA, ATVI, COV, LNT