Schlumberger Limited

Date: June 25, 2024.

Company’s Overview

Schlumberger Limited (SLB) is a global leader in oilfield services. They operate worldwide, providing technology, project management, and information solutions for all aspects of oil and gas exploration and production. This includes seismic data processing, formation evaluation, well drilling and completion services, and more.

Competition

Schlumberger Limited operates within the Electrical Components and Equipment industry, which is composed by:

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

The Company’s Comparison of total net revenues by segment from 2019 till 2023:

Related Risks

Schlumberger Limited navigates a challenging landscape. Their revenue hinges on oil prices, making them susceptible to price fluctuations that can trigger a decline in exploration and production activity. The growing shift towards renewable energy sources poses a long-term threat to overall demand for oil and gas, potentially hindering their future growth. Geopolitical tensions in oil-producing regions can disrupt operations and make securing contracts difficult. Increasing environmental regulations aimed at curbing greenhouse gas emissions could restrict oil and gas exploration and production, further impacting their business. They face stiff competition in the oilfield services market, demanding constant innovation and efficiency to maintain their market share.

Financial Performance

Revenues

Revenues from 2020 to 2023:

• SLB’s annual revenue for 2023 was $33.135B, a 17.96% increase from 2022.
• SLB’s annual revenue for 2022 was $28.091B, a 22.51% increase from 2021.
• SLB’s annual revenue for 2021 was $22.929B, a -2.85% decrease from 2020.
• SLB’s annual revenue for 2020 was $23.601B, a -28.3% decrease from 2019.

The yearly revenue from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Net Income

Net Income from 2020 to 2023:

• SLB’s annual net income for 2023 was $4.203B, a 22.14% increase from 2022.
• SLB’s annual net income for 2022 was $3.441B, a 82.93% increase from 2021.
• SLB’s annual net income for 2021 was $1.881B, a 117.88% increase from 2020.
• SLB’s annual net income for 2020 was $-10.518B, a -3.76% decrease from 2019.

The yearly net income from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

EPS

EPS from 2020 to 2023:

• SLB’s annual EPS for 2023 was $2.95B, a 21.4% increase from 2022.
• SLB’s annual EPS for 2022 was $2.43B, a 81.34% increase from 2021.
• SLB’s annual EPS for 2021 was $1.34B, a 117.7% increase from 2020.
• SLB’s annual EPS for 2020 was $-7.57B, a -3.42% decrease from 2019.

The yearly EPS from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Free Cash Flow

Free Cash Flow from 2020 to 2023:

• SLB’s annual free cash flow for 2023 was $4.191B, a 176.63% increase from 2022.
• SLB’s annual free cash flow for 2022 was $1.515B, a -50.1% decrease from 2021.
• SLB’s annual free cash flow for 2021 was $3.036B, a 99.08% increase from 2020.
• SLB’s annual free cash flow for 2020 was $1.525B, a -47.88% decrease from 2019.

The yearly free cash flow from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Financial Strength

Shares Outstanding

On January 21, 2016, SLB’s board authorised a share repurchase program of up to $10B of its common shares.

The increase in shares outstanding by almost 18% since 2009 is a negative aspect. This dilutes the value per share, potentially impacting earnings per share (EPS) in the future.

Assets/Liabilities

They have a bright spot with a good asset-to-liability ratio of 1.85. This indicates they have more assets than liabilities, providing a buffer for unexpected financial strains.

Current Ratio

Their current ratio of 1.37 falls short of the recommended level of 1.5. This indicates they might have challenges covering their short-term liabilities (like accounts payable) with their current assets (like cash and inventory) in the short term.

Net Debt

Another positive sign is their net debt of $8.8 billion. While not insignificant, it’s a manageable amount compared to their overall financial picture. Furthermore, the decrease in net debt by almost 37% since 2019 demonstrates their commitment to reducing liabilities and improving their financial health. The net debt also comprises a moderate portion (around 34%) of their total liabilities.

Valuation

Based on the analysis performed, ETN’s price is significantly overvalued. As key metrics, we considered 10% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 26 buy, 6 overweight, 3 hold, 0 underweight and 0 sell ratings. The consensus rating leans towards buy.

Schlumberger’s outlook presents a concerning picture. Their financial performance is weak, with a declining trend in revenue, net income, and free cash flow over the past 10 years (CAGR of -3.75%, -2.54%, and -5.29%, respectively). This suggests a company struggling to adapt to a changing energy landscape. Their profitability metrics are below industry medians, with a gross margin of 19.97% (vs industry median of 24.8%) and net margin of 12.71% (vs industry median of 9.97%). While they’ve reduced net debt and maintained a decent asset-to-liability ratio, their mediocre current ratio of 1.37 raises concerns about short-term liquidity.

Adding to the concerns, their stock appears to be priced for a brighter future than what the financials suggest. According to our analysis, the stock price seems to be significantly overvalued. The P/E ratio of 16.13 sits above the industry median (11.37), indicating a potential overvaluation. The significant increase in shares outstanding (almost 18.1%) further dilutes shareholder value.

Overall, Schlumberger is a company facing significant challenges. Their declining financial performance, coupled with an uncertain future for the oil and gas industry, make them a risky investment. While they boast a decent ROIC of 14.32% and some positive aspects in their financial strength, with an asset-to-liability ratio of 1.85, these are overshadowed by the overall weaknesses. Investors seeking companies with a track record of growth and a strong financial position would be better off looking elsewhere. Schlumberger might be a gamble for those who believe in a rebound in the oil and gas industry, but careful due diligence is essential before considering them.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.