Schlumberger Limited. (NYSE:SLB) has appreciated significantly since the end of June, from around $71.60 per share to nearly $83.80 per share. With that gain, Schlumberger Limited. (NYSE:SLB) has now appreciated nearly 21% this year, a bit higher than the S&P 500’s return of 18.90%. The recent gain was due to its impressive second-quarter earnings and its big share buyback plan. Let’s take a closer look to see whether or not investors should buy Schlumberger Limited. (NYSE:SLB)’s shares at its current price.
Consistent cash generation with a conservative capital structure
Schlumberger Limited. (NYSE:SLB), founded in 1926, is the global leader in technology and integrated project management in the oil & gas industry, operating in three main business segments: Reservoir Characterization, Drilling, and Production. Most of its revenue, $15.97 billion, or 37.9% of the total revenue, was generated from the Drilling segment. The Production segment ranked second with $14.87 billion in sales, while Reservoir Characterization contributed the least with $11.4 billion in 2012 revenue. Interestingly, the Reservoir Characterization segment enjoyed the highest operating margin, with the highest income before taxes of $3.2 billion.
What I like about Schlumberger Limited. (NYSE:SLB) is its consistent positive cash flow generation and a strong balance sheet. Operating cash flow has increased from $2.1 billion in 2003 to $6.8 billion in 2012, while the free cash flow rose from $1 billion to nearly $1.78 billion during the same period. Investors would feel safe with Schlumberger Limited. (NYSE:SLB) due to its conservative capital structure. As of June 2013, it had $37 billion in equity, more than $5.9 billion in cash and short-term investments, and only around $12 billion in total debt.
Possibility of a decent total yield
Since 2003, Schlumberger has also paid consistently growing dividends to shareholders. The dividend per share has risen from $0.38 per share in 2003 to $1.38 per share in 2012. Moreover, the company has also returned cash to shareholders via share repurchase activities. In the past five years, Schlumberger has spent as much as $7.8 billion to retire more than 105 million shares.
The company also expects to return much more cash to investors via its new share repurchase plan of $10 billion. At nearly $83.80 per share, Schlumberger is worth around $111 billion. The market values the company at 9.3 times its trailing EBITDA (earnings before interest, taxes, depreciation, and amortization). A new $10 billion will yield as much as 9% to investors. Including a 1.6% dividend yield, the total yield reaches 10.60%.