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TGIF. It sure is great getting to Friday with the weekend ahead!
I was looking through the list of top % gainers on the NYSE this evening and came across Schlumberger Limited (SLB) which closed at $61.00, up $3.10 or 5.35% on the day. I do not own any shares or options on this stock, although my wife does own about 60 shares of SLB in her IRA account.
Let's take a closer look at SLB and I will try to walk you through some of the reasons why I believe it deserves a place on this website.
What exactly does this company do?
According to the Yahoo "Profile" on Schlumberger, the company
"...operates as an oilfield services company in the United States and internationally. It operates in two segments, Schlumberger Oilfield Services and WesternGeco. Schlumberger Oilfield Services segment provides technology, project management, and information solutions to the petroleum industry. This segment offers exploration and production services, such as drilling and measurement; well completions and productivity; data and consulting; and well services required during the life of an oil and gas reservoir. WesternGeco segment provides reservoir imaging, monitoring, and development services. This segment�s services range from 3D and time-lapse (4D) seismic surveys to multicomponent surveys for delineating prospects and reservoir management."
How did they do in the latest quarter?
It was the announcement of 4th quarter 2006 results that drove the stock higher on Friday. Revenue for the fourth quarter ended December 31, 2006, increased 33% to $5.35 billion from $4.02 billion in the same quarter the prior year. Additionally, the company reported an 8% sequential increase from $4.95 billion in revenue reported in the preceding quarter. Net income was also up sharply at $1.13 billion, compared to $660.6 million in the prior year same period. On a per share diluted basis this came in at $.92/share, up sharply from $.54/diluted share last year.
Importantly, the company beat expectations on both revenue and earnings. According to Thomson First Call, analysts expected earnings of $.85/share on revenue of $5.14 billion.
How about longer-term results?
Reviewing the Morningstar.com "5-Yr Restated" financials on Schlumberger shows how revenue actually dropped from $10.9 billion in 2001 to $9.7 billion in 2002. However, since that year, revenue has steadily increased to $14.3 billion in 2005 and $17.9 billion in the trailing twelve months (TTM).
Earnings also dipped that same year from $.46/share in 2001 to a loss of $(3.99)/share in 2002. However, by 2003, the company was once again profitable reporting $.33/share in earnings, growing that to $1.82/share in 2005 and $2.63/share in the TTM.
During this period of apparent restructuring, the company also initially decreased the number of shares outstanding from 740 million in 2001 to 579 million in 2002. However, by 2003 the company has 1.16 billion shares outstanding. This number has held stable with 1.18 billion shares outstanding in 2005 and the TTM.
Schlumberger is a veritable cash machine, with $1.1 billion in free cash flow in 2003, dropping to $630 million before increasing to $1.4 billion in 2005 and $2.1 billion in the trailing twelve months.
The balance sheet appears reasonable with $1.9 billion in cash and $6.09 billion in other current assets. This is balanced against the $6.2 billion in current liabilities and $4.9 billion in long-term liabilities. The current ratio works out to a satisfactory 1.28.
What about some valuation numbers?
Schlumberger is certainly a large cap stock with a market capitalization of $71.87 billion according to Yahoo "Key Statistics". The trailing p/e is a moderate 23.16, and the company is growing so quickly that the forward p/e (fye 31-Dec-07) works out to a nice 13.44. The PEG ratio (5 yr expected) is reported at 0.66. Generally PEG ratios between 1.0 and 1.5 are reasonable. Under 1.0 is 'cheap' and over 1.5 may be considered to be a rich valuation.
According to the Fidelity.com eresearch website, the Price/Sales (TTM) works out to 3.74, slightly higher than the industry average of 3.16. Fidelity goes on to show that the Return on Equity (TTM) is at 39.87%, higher than the industry average of 30.89%.
Finishing up with Yahoo, we can see that there are 1.18 billion shares outstanding with 1.14 billion that float. Currently as of 12/12/06, there are 26.21 million shares out short, representing 2.3% of the float or a short ratio of 3.3.
The company pays a forward annual dividend of $.50/share, yielding 0.8%. The company last had a 2:1 stock split on April 10, 2006.
What does the chart look like?
Reviewing the StockCharts.com "Point & Figure" chart on Schlumberger, we can see that the stock traded beteween $29 and $17 between 2002 and 2004. In early 2004, the stock moved higher climbing as high as $74/share in May, 2006. Since that time the stock has traded in a tight range between $55 and $70. The stock price has come back to the 'support line' and appears poised to move higher. Note the series of higher short-term lows.
Summary: What do I think about this stock?
Please note that my wife does have a few shares (less than 100) in a retirement account. But besides that, the company reported a strong quarter on Friday. The company is confident it can handle any decline in the price of oil, but certainly that will affect exploration activity. Otherwise, besides the possibile cyclical nature of the oil business, this is a very pretty picture with strongly growing revenue, earnings, and stable stock shares. Valuation appears reasonable with a p/e in the low 20's and a PEG under 1.0. Finally the chart does not appear overextended. Even though this is a large cap stock, I like this company and will keep it in my vocabulary of investment possibilities.
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