Halliburton Company (HAL), Baker Hughes Incorporated (BHI), Schlumberger Limited. (SLB): This Oilfield-Services Titan Stands Out From the Crowd

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Conclusion:  Beyond P/E

What makes Schlumberger more attractive than its rivals?

Firstly, Schlumberger has a solid track record of revenue and income growth. Secondly, Schlumberger has been more profitable than its rivals. On a trailing-12 month basis, Schlumberger has operated on a profit margin of 14.0%, as opposed to Halliburton’s 6.6% and Baker Hughes’s 4.7%.Thirdly, Schlumberger has generated a much higher return on equity of 18.1%, which is above the industry’s average of 15%.

Fourth, its ability to generate free cash flows stands out from the crowd. In the trailing-12 months, Schlumberger has generated leveraged free cash flow of $4.1 billion, which is significantly more than the combined leveraged free cash flows of Halliburton and Baker Hughes.

This is one of the reasons why the credit-rating agencies are not worried about Schlumberger’s rating, despite the enormous buyback program and they are not pleased with Halliburton’s repurchase program (here’s a link to ratings agency Moody’s press release in which they have changed Halliburton’s outlook to negative).

And finally, as indicated earlier, Schlumberger could be the biggest beneficiary from an uptake in international drilling activity due to its large global footprint. Schlumberger is the leader in its industry and this alone warrants a higher P/E, but it is not too far ahead of its rivals and therefore, due to the reasons explained above, even at these price levels, Schlumberger is a buy.

The article This Oilfield-Services Titan Stands Out From the Crowd originally appeared on Fool.com and is written by Sarfaraz Khan.

Sarfaraz Khan has no position in any stocks mentioned. The Motley Fool recommends Halliburton.

Sarfaraz is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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