Schlumberger Limited. (NYSE:SLB), the largest publicly traded U.S. oilfield services company by market capitalization (at $110 billion), recently reported its results for the second quarter of 2013. The company saw an 8% increase in revenue versus a year earlier, which was in line with the growth of its business from Q1. It recorded a significant gain on the formation of a joint venture specializing in subsea oil and gas services; if the results are adjusted for that and for a significant impairment charge last quarter, then pre-tax income ends up rising 13% compared to the prior year period.
About half of the company’s cash flow from operations in the first half of the year has gone to capital expenditures, with most of the rest going to dividends and share repurchases.
Other concerns for investors
The stock currently trades at 18 times trailing earnings, as investors expect profits to continue to grow in the future — possibly helped by the ongoing boom in oil and gas development in the onshore U.S., as well as continued triple-digit oil prices. Schlumberger Limited. (NYSE:SLB)’s buyback activities could also supplement earnings growth and generate steeper growth in earnings per share.
Wall Street analysts are expecting the company to earn $5.74 per share next year, making for a forward P/E of 14. It should be noted that the connection between drilling activity and oil prices, and therefore to the overall economy, results in Schlumberger Limited. (NYSE:SLB) carrying a beta of 1.8.
Who owns it?
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It turns out that billionaire Steve Cohen’s SAC Capital Advisors reported a position of 1.2 million shares in Schlumberger Limited. (NYSE:SLB) at the beginning of April (find Cohen’s favorite stocks). Renaissance Technologies, founded by billionaire Jim Simons, was buying the stock in the first quarter of 2013 (see Renaissance’s stock picks).
Comparing the company to its peers
The closest peer for Schlumberger Limited. (NYSE:SLB) is Halliburton Company (NYSE:HAL), considered a major player in the industry even though it is somewhat smaller with a market cap of $43 billion. Halliburton recently pleaded guilty to destroying evidence and settled with the Justice Department; with this uncertainty removed from the stock price, it rose 4% on the day. Earnings have recently been low for the company, and sales growth has been more limited than it has been for its larger peer.
However, the sell-side expects Halliburton Company (NYSE:HAL) to rebound and so, it trades at a small discount to Schlumberger Limited. (NYSE:SLB) on a forward earnings basis with a P/E of 11. Expectations for continued growth yield a five-year PEG ratio of 0.7, though it may be best to wait for the company’s actual results to improve before considering it as a value play.