SchlumbergerSLB37,00 $
Today we have a moderately speculative idea.: take shares of the oilfield service company Schlumberger (NYSE: SLB), in order to make money on the growth of investments in oil production.
Growth potential and validity: 14,5% excluding dividends for 14 Months; 28% behind 2,5 years excluding dividends; 11% per annum during 9 years including dividends. In all variants, the probability of separating one of the company's divisions into a separate issuer is taken into account.
Why stocks can go up: because oil companies are motivated to extract oil – which stimulates demand for Schlumberger services.
How do we act: take now 37 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
SLB is engaged in servicing oil and gas companies - sells goods of its own production and provides related services.
According to the company's annual report, her earnings are divided as follows:
- Digital Services and Integration — 14,34%. Various technological services, including software. Segment pre-tax profit margin - 34,68% from its proceeds.
- Production capacity — 20,05%. R&D Solutions for Production Growth. Segment pre-tax profit margin - 14,09% from its proceeds.
- Wells — 37,96%. Everything, what is related to drilling, construction and further maintenance of wells. Segment pre-tax profit margin - 13,72% from its proceeds.
- Mining systems — 27,65%. Equipment for transportation, Drilling, Intelligence. Segment pre-tax profit margin - 9,44% from its proceeds.
The company's business is divided into goods, which bring 31,96% company revenue, and services, which bring 68,04% company revenue.
Revenue by region:
- Middle East and Asia — 36%.
- Europe, CIS and Africa — 25%.
- Latin America — 19%.
- North America - 19%.
- Other regions — 1%.
Arguments in favor of the company
Oil. In connection with the well-known events and the actual blockade of Russia, oil prices have increased and, probably, will remain high for a long time. It will not be possible to completely replace Russia in the oil market, and even for that level of substitution, which the US and the EU plan to hold, monstrous investments in hydrocarbon production are needed – otherwise events may begin in Western countries, similar themes, what inspired George Miller to come up with Mad Max. And that means, that the demand for SLB goods and services will grow.
"Never underestimate the predictability of stupidity". Recent surveys of investment fund managers show, that the vast majority believe that, that oil will be the most profitable investment in 2022. I think, that their faith will pump up a significant portion of oil-related companies, based on the motivation "I read here in the Wall Street Journal, that oil is now a very promising investment".
This is an important point, since the capitalization of SLB is about 51 billion dollars, so the positive attitude of institutional investors here will be very significant for pumping up the company's shares..
Shots were fired at the market, and got on the company. Shares of SLB recently fell sharply along with the pogroms in the market: yet 10 June they were asked for 47 $, and now they are standing 37 $. It's a pretty pointless drop from the point of view of the economic foundation., as the situation for the company improves. I believe, that we have a rare opportunity to pick up stocks, for the fall of which there was no good reason at all, — and make money on the rebound.
Dividends. The company pays 0,7 $ per share per year, what gives 1,91% per annum. That in itself isn't that very small., but in the conditions of expected growth in the company's revenues, you can count, if not on a serious increase in dividends., then at least for one-time large payments.
Share, guys. Digital Services and Integration looks very cool, And, it seems to me, it may well be released on the stock exchange within the next 5 years as a separate issuer. And I think, shares of this particular company will grow more vigorously, than SLB.
What can get in the way
Price. P / S at the company 2,33, a P / E — 26,25. There is no great sin in this., but the company cannot be called monstrously undervalued..
«Walk, man". The company has 26.328 billion debts, of which more than 10 billion need to be repaid within a year. There's not a lot of money at her disposal.: 1,6 billion in accounts and 5.713 billion in counterparty debts. In the context of rising rates and rising borrowing prices, this will scare off some investors and threaten to cut dividends., as well as hinder their growth.
The Great Unknown. Ritual humiliation of all oil companies, occurred in the spring 2020, when oil prices turned negative (sic!), may recur and cause losses for SLB.
May not swing. Remembering the horrors of spring 2020, many oil companies are now restricting investment in oil production and prefer to spend the surplus money to close debts.. This could significantly hamper SLB's revenue growth..
Russia. In the Russian Federation, the company 5% revenue and assets for 800 million - if for some reason SLB has to quickly stop all operations in the country and urgently sell assets, then within one or two quarters this will have an extremely negative impact on its reporting..
What's the bottom line?
You can take shares now by 37 $. And then there are the following options for the development of events.:
- keep up 42 $. Think, it's better to rely on 14 Months;
- hold until the stock returns to the level 47 $. It is better to count on 2,5 years of waiting;
- keep shares next 9 years in anticipation of, that the company will list its most technologically advanced and margin division as a separate issuer.
Dividends 1,91% per annum, which shares of the company give now, do not bring gigantic profitability, therefore, you can not guard the news about the reduction or cancellation of payments.
