We've been asking ourselves recently if the market has placed a fair valuation on Schlumberger. Let's dive into some of the fundamental values of this large-cap Energy company to determine if there might be an opportunity here for value-minded investors.
Schlumberger's P/B and P/E Ratios Are Higher Than Average:
Schlumberger Limited engages in the provision of technology for the energy industry worldwide. The company operates through four divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. The company provides field development and hydrocarbon production, carbon management, integration of adjacent energy systems; reservoir interpretation and data processing services for exploration data; and well construction and production improvement services and products. The company belongs to the Energy sector, which has an average price to earnings (P/E) ratio of 7.54 and an average price to book (P/B) ratio of 1.68. In contrast, Schlumberger has a trailing 12 month P/E ratio of 21.2 and a P/B ratio of 4.41.
When we divideSchlumberger's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.6, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
The Company's Revenues Are Declining:
| 2020-01-22 | 2021-01-27 | 2022-01-26 | 2023-01-25 | |
|---|---|---|---|---|
| Revenue (MM) | $32,917 | $23,601 | $22,929 | $28,091 |
| Gross Margins | 12.8% | 11.0% | 16.0% | 18.4% |
| Operating Margins | 9.4% | 8.2% | 12.7% | 17.0% |
| Net Margins | -30.8% | -44.57% | 8.2% | 12.25% |
| Net Income (MM) | -$10,137 | -$10,518 | $1,881 | $3,441 |
| Net Interest Expense (MM) | -$609 | -$563 | -$539 | -$490 |
| Depreciation & Amort. (MM) | -$3,589 | -$2,566 | -$2,120 | -$2,147 |
| Earnings Per Share | -$7.32 | -$7.57 | $1.32 | $2.73 |
| EPS Growth | n/a | -3.42% | 117.44% | 106.82% |
| Diluted Shares (MM) | 1,385 | 1,390 | 1,427 | 1,421 |
| Free Cash Flow (MM) | $7,155 | $4,060 | $5,792 | $4,995 |
| Capital Expenditures (MM) | -$1,724 | -$1,116 | -$1,141 | -$1,275 |
| Net Current Assets (MM) | -$16,606 | -$17,026 | -$13,571 | -$10,143 |
| Current Ratio | 1.19 | 1.23 | 1.22 | 1.25 |
| Long Term Debt (MM) | $14,770 | $16,036 | $13,286 | $10,594 |
| Net Debt / EBITDA | -2.52 | -2.44 | 3.04 | 1.99 |
Schlumberger benefits from wider gross margins than its peer group, decent operating margins with a positive growth rate, and positive EPS growth. The company's financial statements show consistent free cash flow and healthy leverage. However, the firm has declining revenues and decreasing reinvestment in the business. Finally, we note that Schlumberger has just enough current assets to cover current liabilities.
