Schlumberger: Examining the Positives

There’s no doubt about the fact that Schlumberger (SLB) has been beaten down on the stock market in the past year as the weakness in oil pricing has taken its effect. However, to navigate the weakness, Schlumberger has adopted a number of strategies that will lead to long-term gains. Let’s take a look at them.

Schlumberger is improving its operational execution

Schlumberger has a commitment toward enhancing reliability through the successful implementation of its engineering, manufacturing, and sustaining (EMS) organization approach.

The company has achieved this goal by improving product reliability through 80% decrease in the NPT rate for manufacturing and targets on controlling process reliability.

In fact, Schlumberger is focused on maximizing the asset utilization including the workforce complete utilization while minimizing the non-core expenditures to improve profitability and drive enhanced shareholder returns. To achieve this, the company is increasingly support cost control initiatives as seen from the fact that when Schlumberger strategically acquired Smith International during 2010, it formed a shared service group to optimize the support staff in the organization.

Schlumberger’s superior transformation program enabled it to lower both its straight and support headcount through impressive field management services. In addition, Schlumberger has enhanced its top line by about 4 times compared to the 2004 level while, significantly optimizing its support staff growth to just two-fold.

Schlumberger has significantly grown its year-over-year operational reliability by almost 10 times since 2009 and till date coupled with continued decline in operating time through optimizing its workforce and reducing field, operations and support headcount.

Other points

Despite the end-market weakness, Schlumberger is still a shareholder-friendly company. Last quarter, Schlumberger’s Board of Directors bought back nearly 6.9 million shares of its common stock at a regular price of $78.76 per share for a net acquisition price of $545 million and in line with its continued commitment to deliver improved shareholder returns.

Now, considering its cost reduction moves and shareholder-friendly nature, I don’t find it surprising to see that analysts expect Schlumberger to outperform the market

Another good reason to buy Schlumberger stock is the valuation. It has trailing P/E and forward P/E ratios of 28.22 and 24.04, respectively, indicating bottom line strength going forward. Moreover, Schlumberger carries a strong profit margin of 8.40% even in a weak pricing environment. So, I think that Schlumberger is a stock that investors should continue holding in their portfolios as it will do well in the long run.

Published on Oct 21, 2015
By Harsh Singh Chauhan

Copyrighted 2020. Content published with author's permission.

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