Schlumberger: Modestly Undervalued and Growing

Schlumberger (SLB), the world's largest oilfield services provider, has been quietly outperforming its peers in the sector, despite the recent market volatility. The company's strategic repositioning and cost-cutting measures have contributed to its strong financial performance and growth prospects. In this article, we will explore how Schlumberger's key financial metrics indicate that it is modestly undervalued compared to its peers, and how its strategic initiatives have driven its growth.



Modestly Undervalued

Schlumberger's forward price-to-earnings (P/E) ratio of 9.48 is lower than the sector average of 10.41, suggesting that the company's stock price may not fully reflect its expected earnings growth. Additionally, Schlumberger's forward price-to-sales (P/S) ratio of 1.02 is lower than the sector average of 1.14, indicating that the company's stock price may not fully reflect its expected revenue growth. Furthermore, Schlumberger's dividend yield of 2.1% is higher than the sector average of 1.8%, making it more attractive to income-oriented investors.



Strategic Repositioning and Cost-Cutting Measures

Schlumberger's strategic repositioning and cost-cutting measures have significantly contributed to its financial performance and growth prospects. Since 2019, the company has strengthened its balance sheet, enhanced its portfolio management process, and optimized its portfolio for resilience and long-term growth across three engines of growth—Core, Digital, and New Energy. These actions have enabled the company to substantially improve operating leverage, positioning it for continued margin expansion as global activity accelerates.

Effective portfolio management, combined with cost-cutting measures, has allowed Schlumberger to generate compelling returns and position itself for long-term strength in all markets where it operates. The company has increased its dividend by 40% in April 2022 and a further 43% in January 2023, demonstrating its commitment to returning capital to shareholders through sustainable dividends and share buybacks.



Growth Drivers

Schlumberger's primary growth drivers in the near to mid-term are:

1. Core Engine Growth: The company's core businesses, such as field development and hydrocarbon production, carbon management, and integration of adjacent energy systems, are expected to drive growth. This is supported by the company's focus on optimizing its portfolio for resilience and long-term growth across these areas.
2. Digital and New Energy Engines: Schlumberger is investing in digital technologies and new energy solutions to diversify its revenue streams and tap into emerging markets. This aligns with the company's long-term strategic goal of becoming a more agile, less capital-intensive, and returns-focused business.
3. Expansion into New Markets: Schlumberger is expanding its presence in emerging markets, such as the Middle East and Asia, to capitalize on growth opportunities in these regions. This strategy is in line with the company's long-term goal of increasing its global footprint and market share.



Conclusion

Schlumberger's key financial metrics indicate that it is modestly undervalued compared to its peers in the oilfield services sector. The company's strategic repositioning and cost-cutting measures have significantly contributed to its financial performance and growth prospects. With a strong focus on core engine growth, digital and new energy engines, and expansion into new markets, Schlumberger is well-positioned to achieve its long-term strategic objectives and create value for shareholders. As the energy industry continues to evolve, Schlumberger's agile and returns-focused approach will be crucial for its success.